The state’s highest court has agreed to hear an appeal from the Niagara County Industrial Development Agency on a ruling that nullified the agency’s tax break deal with AES Corp. in Somerset.

As a result of a decision issued on Thursday, the Court of Appeals will review the findings of the State Supreme Court Appellate Division, Fourth Judicial Department, which in May invalidated a 12-year, $192 million payment-in-lieu-of-taxes deal between the agency and AES.

IDA attorney Mark Gabriele conceded that it is generally difficult to convince the higher court to overturn a lower court ruling, but said it is a welcome sign for the county that the Court of Appeals agreed to hear the case, something it is normally not apt to do.

“The indications, legally, are certainly good,” he said.

The IDA granted the original PILOT agreement to AES in exchange for a promise by the company to pursue the construction of a state-subsidized clean coal plant under former Gov. George Pataki’s Advance Clean Coal Initiative. Under the original deal, the company agreed to drop a series of pending lawsuits challenging the Town of Somerset’s annual assessment.

In early 2007, the Town of Somerset, Barker School District and Niagara County sued the IDA and AES in an effort to have the PILOT rescinded. State Supreme Court Justice Richard Kloch dismissed their petitions that year, prompting the school district and town to proceed with an appeal.

The State Supreme Court Appellate Division later reversed Kloch’s decision, finding multiple flaws in the IDA’s justification for granting the tax break, including lack of evidence supporting the agency’s claim that the deal would compel AES to drop its assessment lawsuits to the benefit of the taxing entities. The court also found that the agency deviated from its uniform tax exemption policy without proper justification for doing so.

IDA officials directed their outside legal counsel, Harris Beach, to file a request for the appeal earlier this year, expressing fear that the Appellate Division ruling would pose challenges to the agency’s core mission of creating jobs through incentive programs.

Of particular concern to the IDA is a section of the ruling that suggests the PILOT was improper because the company failed to supply the agency with adequate financial information that should have been used to determine if the tax break was indeed necessary.

The IDA argues that current law governing the activities of New York’s economic development agencies require no such threshold and mandating it would prevent industrial development agencies statewide from doing business with any company that could not prove financial hardship. The IDA also contends that the ruling would make it difficult for the agency to assist financially stable companies that are looking to expand.

The Appellate Division ruling cleared the way for AES Somerset to reactivate the lawsuits that sought to challenge the plant’s assessed value. IDA officials have expressed concerns that such legal action could result in local taxing jurisdictions being forced to pay costly tax refunds to the company or that issues surrounding the cost of operating the plant would compel AES to move out of Somerset altogether.

Gabriele said the Court of Appeals is expected to set a formal hearing date on the county’s appeal in the coming weeks. In the meantime, Gabriele said the existing PILOT agreement remains in effect pending the outcome of the agency’s legal action.

Gabriele noted that officials from the company, the county and other impacted taxing jurisdictions are currently in negotiations to develop a new settlement agreement. He said he’s hopeful the Court of Appeals case would help move that process along.

“It is something that I hope ultimately helps the parties come to an agreement,” Gabriele said.

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