WESTFIELD – The Municipal Light Board discussed the formula for its payment in lieu of taxes to the city last night and will continue discussion of amending its agreement with the city at its October meeting.
The general consensus is that the payment, which is rapidly approaching $600,000 a year, is too high, but that is where agreement ended last night. Board members broached a number of options, including returning to a flat payment, which several members argued would aid both the department and the city in financial and budgetary planning.
Chairman Tom Flaherty suggested a flat annual payment of between $350,000 and $400,000, while other members were not yet ready to abandon the formulaic approach to calculating the annual payment to the city.
The PILOT is calculated on 70 percent of the department’s physical plant value, as reported annually to the state Department of Public Utilities, 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 this year. The net payment for the 2014 fiscal year will be $405,919 because of funds “loaned” to the city for traffic light improvements and replacing the lights at the Park Square Green with energy-efficient LED fixtures, and installing a control (dimmer) system to adjust those fixtures.
General Manager Dan Howard said the recent rapid increase in the payment amount is due to the “significant investment” in the department’s gas and electric infrastructure over the past six years, but he anticipates that number will level off. The plant value, as reported to the DPU, has risen from $20.6 million to $26.2 million since 2007.
“The PILOT will not (continue) to increase significantly because we will not be increasing the plant value significantly (through new infrastructure investment),” Howard said. “The increase does put a strain on the department (financially), but it’s because of the investment in the plant, investment that was necessary to be made.”
Flaherty said the formula was adopted by the board with the goal of increasing the payment to about $300,000, but that because of plant investment it has continued to increase.
“Now it’s more than $450,00 in cash payments,” he said. “Our ratepayers are getting re-taxed to pay more. Would the board rather a flat annual payment or stay with the formula? I feel that the number has to be lower.”
“Throw the formula out,” Flaherty argued. “It would be better for planning for the department to know how much the payment will be annually. We’d still do the traffic signals. Ten years ago when we (adopted) the formula it was with the goal to bring the payment up to about $300,000.”
Commissioner Kevin Kelleher said that he has “always liked the formula.”
“It allows the department and the city to (financially) plan,” Kelleher said. “The tax rate is not changing. What has changed is the plant value which has increased $6 million.”
“Evert time we put money into the plant, the PILOT goes up. Why not put a cap on the plant value at $25 million?” Kelleher said, but added that he is “not comfortable with (a) $600,000 (payment), which we are rapidly approaching.”
Kelleher said that he would like to see the payment stabilize in the range of $400,000 to $450,000.
Chief Financial Officer Andy Banas said that the plant value will depreciate over time and that with no major infrastructure investment projects planned, plant value should level out, and then begin to drop, resulting in lower payments.
Commissioner Ed Roman also argued that the plant value may have “plateaued.”
“I have always though the formula was a good idea,” Roman said, “Unfortunately the plant value has increased, grown over $6 million in six years. Obviously a lower payment would be better for the organization.”
Commissioner Robert Sacco, who as chairman of the board helped negotiate the formula, was out of the city yesterday and unable to participate in the discussion. The board members decided to resume discussion of the PILOT at the October session.
