Tuesday, February 23, 2010

Grand List: Correction

Earlier today I published the top ten grand list, with a mistake in the calculation for what the tax would be, a corrected table is below.

Property owners are charged a tax on 70% of the assessed value of their property. The "Assessment" in the table, is AFTER that 70% has already been calculated. Thus, the tax which property owners would pay (if the mill rate does not increase) is about 1/3 higher than I had in the earlier post.

The tax paid by the Kleen Energy is more complicated because of the 2003 tax deal.

TaxpayerAssessmenttax if NO mill rate increase
1) Aetna Life (Including lessor’s)Insurance$216,341,550$5,516,710
2) United TechnologiesManufacturing$144,349,820$3,680,920
3) Connecticut Light & PowerUtility$67,639,270$1,724,801
4) Middletown Power LLCUtility$45,332,710$1,155,984
5) Kleen Energy Systems LLCUtility$44,997,740It is complicated
6) Northwood Apt Assoc LLCApartments$23,619,040$602,286
7) Chestnut Hill Apt Assoc LLCApartments$21,765,650$555,024
8) Fairfield Midtown Brook LPApartments$21,609,110$551,032
9) Fairfield Midtown Ridge LPApartments$21,337,320$544,102
10) New Boston WindshireApartments$17,959,480$457,967

Kleen Energy and Property Tax
According to Damon Braasch, Assessor for the City, the agreement with Kleen Energy is for Payment in Lieu of Taxes (PILOT), specifically on the power plant. Other parcels of land, and a water plant, are not part of the PILOT agreement.

The assessment given above includes all of the Kleen Energy property. Braasch said that the assessed value of the plant itself (on October 1) was $40.9M, this would normally generate a tax of $1.04M. However, since the agreement calls for "the lesser of $1 million or the amount determined as if this Agreement were not in effect," the tax will be $1M. Kleen will pay a normal tax rate on the remaining $4.1M assessment, about $100,000.

Just to make things even more complicated, property owners also pay tax to one of the three fire districts. As there is no apparent agreement with the South Fire District, Kleen would pay full fire taxes on the entire assessment. A couple of years ago the South District mill rate was 3.4, this would yield about $150,000 in taxes from Kleen Energy for the South District.

10 comments:

Anonymous said...

So in reality, assuming an assesment of $50 million on Kleen the tax would be $1.5 million assuming a mill rate of 30. The tax agreement has no effect on the assesed value.

The agreement requires a payment of $1.8 million per year in year one and increasing to $5.2 in year 25.

Taxes on power plants without agreements will always decline because of depreciation and tax appeals. Niether apply to Kleen because of the agreement.

Overall the KLEEN tax agreement appears to be a very good deal for the city, even without the taxes from pipelines, the wells.

fishmuscle (Stephen H. Devoto) said...

If the assessment were to remain at less than $100 million, and the mill rate less than what it is now, then the agreement does not cost the city very much, if anything. However, if the assessment rises to over $600 million, which is what the insurance value suggests it might be (even before it begins commercial operation), the city has agreed to give up over 80% of its potential tax revenue.

There may be environmental, or economic, or political reasons for why this is good for the city, but they have not been explained. Moreover, what is the evidence for the statement that the assessment on an efficient natural gas power plant can only decline? With inflation and rising energy costs, who can guarantee that Kleen Energy will be not be worth MORE 25 years from now than it is today?

Without explanations and evidence for why a property described by its owners as a "billion dollar power plant" should be taxed for 25 years as if it is worth TEN times less, it is hard to agree that the "KLEEN tax agreement appears to be a very good deal for the city..."

Anonymous said...

Fishmuscle

I can not beleive what I am reading. Did you really say if the assesment increases to $600 million. It is well documented the plant was 96% complete and the assesment was $40 million.

Ask the assesor, once the plant is complete the assesment starts to drop significantly as the turbines "personal property like your car" start to depreciate.

Please know the facts if you are going to report them.

Its agood deal for the city.

fishmuscle (Stephen H. Devoto) said...

Here are the facts:

*The owners proposed to build a "$200 million" power plant.

*The city agreed to tax the power plant as if it were worth $100 million.

*The owners received $985 million in construction financing.

*The owners repeatedly referred to it as a "$1 billion" power plant.

*Kleen Energy has $664 million in insurance to cover "the project's estimated value," according to Businessinsurance.com

*The $40 million assessment was on October 1, 2009, when the plant was not anywhere near 96% complete.

I freely admit that I do not know how much the plant will be worth if/when it goes into commercial operation, and I also admit that I do not understand what sort of depreciation applies to power plants.

However, I will go out on a limb and suggest that $1 billion builds a power plant worth more than $40 million.

If you are willing to give up anonymity, let us place a simple bet: Kleen Energy in commercial operation 25 years from today will be assessed at more than $100 million.

Anonymous said...

Fishmuscle has an excellent mind. If it appears difficult for him to understand, then I believe it is because it is nigh impossible for anyone to understand. For this reason, I do not feel entirely mindless that I can not hardly make any sense at all out of the whole tax deal. Maybe it is because the numbers are so large as to be meaningless to ordinary folks....

Anonymous said...

Fishmuscle dont make that bet. 90% of the value is in the turbines. Turbines are personal property, they depreciate. They do not appreciate. The highest value of the plant will be the first year of operation.

Your bet is analogous to betting that your new car will be worth more in 25 years, obviously it won't be.

Call the assesor and get it straight.

The beuty of the tax agreement is it allows for increasing tax payments rather the decreasing and no tax appeals.

Aetna had an abatement and after the abatement they proceeded to appeal their taxes every year costing the city big bucks defending them and constantly lowering their assesment.

Anonymous said...

Also the site work was $200 million alone. If you build a house for $500,000 in a market where houses are selling for $200,000 the assesor can only assess it for its market value.

Middletown Eye (Ed McKeon) said...

Stephen is right on a couple of counts. The tax deal is so bewildering that no one can easily figure it out.

The tax payment to the city under the stabilization is considered to be a payment in lieu of taxes (PILOT), which by contract, absolves Kleen Energy from paying taxes that would normally be assessed.

Ask the assessor? I did. He can't figure out the deal, or why it was structured the way it is. Yes there is depreciation, but to say that a plant, producing a needed commodity will depreciate down to 6% of its current true (replacement cost) value in 25 years is ludicrous.

BTW, insurance companies are loathe to set replacement cost above market value because it's an incentive, in difficult financial times, to destroy the property to collect insurance.

The assessment for the tax stabilization was set in 2003, at 2003 dollars, before a spadeful of dirt was lifted at the site. After a series of favorable legislative acts helped Kleen secure financing (at nearly $1 billion), in 2008 work began. Two year after, the first real PILOT payment was to have begun. A full seven years after the original assessment.

It's a deal for the city, but "adequate" is a better work than "good" to describe it. It could have been much better, with one knowledgeable source indicating that with a reasonable break for Kleen, the city may have been able to drop the mill rate for every one in the city by 3 points.

It's easy to see who was the better negotiator, and it wasn't the city of Middletown.

Anonymous said...

Quite simply - the assessed value sets the amount the city would have recieved in taxes and the agreement sets the amount the city will recieve in payments.

The payments exceed the taxes in year one and far exceed the taxes in the long run.

Middletown Eye (Ed McKeon) said...

You're reducing it to a simplicity that doesn't exist.

The assessment, according to knowledgeable people who have examined the agreement, is way too low. It absolutely does not equal the taxes the city could have received. Ask the assesor.

Thus, concluding that payments will "exceed the taxes" in the long run is the conclusion of someone apparently trying to justify an inadequate agreement.

City taxpayers are subsidizing the deal. The question is, "what are we getting for it?"

IMHO, the answer is "taken."