TO: Batchellerville Bridge Action Committee Members
FROM: Peter Van Avery
DATE: March 7, 2013

Barring a last-minute surprise, it looks as if the Hudson River-Black River Regulating District's four-year financial crisis will finally be resolved when its board meets on March 12 in Utica and approves a modified flood-control assessment on five downstream counties.

This time around, the counties -- Albany, Rensselaer, Saratoga, Warren, and Washington -- will not respond with a lawsuit challenging the legality of the assessment. Why not? Because one by one, they already have consented to the new deal. If and when the board signs off, the agreement will go to the NYS Department of Environmental Conservation for final approval.

The Regulating District has operated on a shoestring budget since August 2008, when a Federal Appeals Court ruled that it could no longer bill downstream hydroplant operators for its operating costs, as it had done since the 1920s. This ruling slashed its annual revenues by more than 80%, or roughly $4 million. To save money, it cut its staff, instituted a raise freeze, deferred all but the most critical improvements to its facilities, and postponed payment of property taxes.

In 2010, to replace the hydros, the District billed the five counties immediately downstream of the Conklingville Dam for flood-control benefits. In those counties, property worth hundreds of millions of dollars sits on the 100-year flood plain, shielded from an overflowing Hudson by the dam. But the counties struck back with a lawsuit, arguing that the District did not have the legal right to impose that assessment.

In 2011, a state Supreme Court judge ruled against the counties, a decision upheld by a mid-level appellate court last May. But the counties did score one major victory. The appellate court ruled that the state -- which owns roads, bridges, parks, and other infrastructure on the flood plain -- also qualified as a flood-control beneficiary and should share payment of the District's annual assessment. Under the final deal approved by the counties, the District will bill the state for 22% of the total.

For the budget year 2012-2013, the total assessment (counties plus state) will be roughly $3.8 million. The county assessments will be fixed at about $3 million for each of the 2012-2015 budget years. The state amount is not fixed. In addition, the District limited the "back charges" (the amount the counties owed for their 2010-2012 assessments) to $3.5 million. Otherwise, the counties would have owed $15 million.

In a memo to the board, District Chief Financial Officer Richard Ferrara says it will take the District as long as three years to return to normal operations.

In the meantime, the District must give Saratoga County a $3.8 million credit for back school and property taxes owed to Day, Edinburg, Hadley, and Providence, meaning that the county will not have to pay taxes to the District for the next three years. The District also must pay $1.78 million in past-due taxes to Fulton and Hamilton counties over a two-year period and start repaying (over a 30-year period) a $3 million loan that the District's Black River Area made to the Hudson River Area (initial payment $371,000).

In addition, the District will be making payments to Fulton and Hamilton counties for current taxes due (estimated at $5 million through June 30, 2015).

Says Mr. Ferrara: "The District will however have sufficient cash flow to continue ongoing Hudson River Area operations, begin and complete certain capital projects, and add personnel to critical areas. By March 2016, following satisfaction of all past due taxes and initial higher payments to the Black River Area, cash flow should return to 'normal' levels."

Once the District's new flood-control assessments take effect, the burden of bankrolling this state authority, previously the responsibility of downstream hydros (which profit from the Conklingville Dam's ability to regulate the flow of the Upper Hudson) will be placed on the backs of taxpayers living in the five downstream counties -- all of which face their own financial challenges. You might keep this in mind when you hear politicians' pious pledges that New York taxpayers face "No New Taxes."

Also, don't forget that the Regulating District attracts lawsuits like a magnet attracts iron filings. If a major ruling goes against the District, the bill presumably would be passed along to the counties and the state.

In the largest pending legal matter, several downstream hydro firms are demanding refunds of the assessments they paid from 2002 (when the Federal Energy Regulatory Commission issued a new license on the reservoir/dam/power station) to 2008 (when a Federal court ruled those assessments were illegal). If all hydros demand a refund, the total would be around $15 million. District Executive Director Michael Clark points out, however, that not all of them may seek a refund and that the outcome of any litigation is still unknown.

In any event, the impact might be softened by the fact that although the 2008 court decision freed the hydros from paying the District's operating costs, they can still be charged for an annual total of $787,000 a year for "headwater benefits" (the energy gain realized from the existence of the reservoir). Since that's less than the refund demanded by the hydros, they aren't paying it, the money is accruing, and litigation is in process. Concludes Mr. Clark: "It appears that we are a fair distance from the finish line with the refund issue."

The next meeting of the Regulating District's board will be held at 10:00 a.m. on Tuesday, March 12, 2013 at the Utica State Office Building (Room 106), 207 Genesee Street, Utica, NY.

Great Sacandaga Lake is at 749 feet above sea level, right on target.