WESTFIELD – The Municipal Light Board voted 4-2 Wednesday night to cap the fiscal year 2014 annual payment to the city in lieu of taxes (PILOT) at $500,000 with a net payment of $440,000 after deducting $60,000 for traffic light maintenance.
That vote came after an hour long discussion of the PILOT formula which was negotiated nearly a decade ago to provide a method of estimating the payment without political infighting each year.
The PILOT is calculated based upon 70 percent of the department’s physical plant value, as reported annually to the state Department of Public Utilities, and assessed at the city’s commercial tax rate, which this year is $31.09 per $1,000 of assessed value. The formula allows the municipal utility to deduct $60,000 for maintaining the city’s traffic lights.
That formula results in a gross payment of $570,919 the current 2013 fiscal year.
The board voted in July to revisit the PILOT formula because of several factors not in place when the formula was originally put in adopted.
One major factor leading to the discussion last night was that historically the city paid the other post employment benefits (OPEB) for all city employees. Mayor Daniel M. Knapik has moved the OPEB, which are substantial liabilities from the city, into revenue generating departments, such as the Westfield Gas & Electric, Water Resource and Wastewater treatment departments.
The other factor MLB members were concerned about is the substantial investments made to the municipal utility’s physical plant to improve reliability and efficiency, investments such as the Southwick gas lateral, the Automatic Meter Reading (AMR) system and improvements to the department’s Elm Street facility, that have vastly increased the value of the physical plant.
Part of the discussion among MLB members and managers is that the PILOT could have a chilling effect on plant investment because that is the only part of the formula that the department can control. The City Council sets the tax rate which is the other major part of the PILOT formula.
MLB Chairman Tom Flaherty opened the discussion seeking a flat payment.
“I think $485,000 is a lot of money,” Flaherty said. “I would like to see it at a fixed number so we can budget and the city can budget based on that number every year. I’d like to see a cash payment of $400,000.”
Commissioner Edward Roman argued that if the department’s plant decreased through depreciation over time and resulted in a lower payment “would we be having this discussion?”
“The plant value is level, so the payment will not spike,” Roman said.
Commissioner Robert Sacco countered that the PILOT will not spike, “unless the tax rate goes up.”
Flaherty said the formula was “devised to get the (PILOT) payment up to a certain level … and the city was paying the OPEB for the department. So now we’re approaching a $500,000 PILOT and whatever we pay for the OPEB.”
Flaherty also raised the position of the late John Palczynski, who served as both mayor and a MLB member, that the PILOT payment is a retroactive and indirect tax to city residents and businesses.
Sacco urged the board to delay a vote to amend the formula until it had more information.
“I’d like to see the big picture on the (impact of the) PILOT and OPEB on the department’s finances,” Sacco said. “It would not be a bad thing to look at the formula again. There has to be some adjustment somewhere.”
Sacco suggested that the City Council liaison to the MLB be invited to the table for further discussion of the PILOT formula. Sacco said the PILOT payment “has grown faster than I anticipated. So we may have to adjust the formula to cap the rate of increase.”
Commissioner Fran Liptak said that he, too, likes the formula, but that it might need to be adjusted to “bring it down a little.”
Flaherty then modified his motion to keep the formula, but set a fixed “gross cap” of $500,000. Flaherty Liptak, Commissioner Jane Wensley and Commissioner Kevin Kelleher voted in favor of that motion, Sacco and Roman voted in opposition.
