ALBANY - The cash-strapped agency that controls the Great Sacandaga Lake scored a potentially lucrative legal victory Thursday when a state appeals court upheld its strategy to generate millions in annual revenue by assessing upstate counties for flood control.
In a 14-page ruling issued Thursday, the Third Department Appellate Division said the Hudson River-Black River Regulating District was "rational" and within the law when it began billing five downstream counties two years ago for the flood-control benefits they've been receiving since the lake was built in 1920s.
But the judges noted the state should bear some of the costs because it also receives significant flood-control benefits. The court ordered the regulating district to recalculate the assessment so some of the $5 million annual tab is picked up by the state Legislature.
A court ruled in 2008 the regulating district no longer could charge fees to downstream hydropower companies. Without that source of revenue, the regulating district has been unable to pay its local and school taxes on time - if at all - for three years.
Since the regulating district first started billing the downstream counties in 2010, the unpaid assessments have totaled $15.2 million.
Michael Clark, the regulating district's executive director, called the court ruling a "monumental decision."
"It really in large part affirms our methodology, which is the whole ball of wax. We need to include the state component, but everything else is there."
"I think it's positive that the court has said it's time for the state to step up and have to pay," said state Sen. Hugh T. Farley, R-Niskayuna. "Certainly, the counties aren't going to be happy with this, but at least it's moving the process along."
It is too early to know whether the counties will appeal the decision or take any other action, said the counties' attorney, Mark J. Schachner of Glens Falls-based Miller, Mannix, Schachner & Hafner.
"I was a little bit disappointed [the ruling] wasn't more definitive. It kind of split the issue a little bit," said Edinburg Supervisor Jean Raymond, whose town collects regulating district taxes but whose county, Saratoga, also is now liable for paying a flood-control assessment under the court ruling.
"This whole thing is ludicrous. It's up to our state officials, the governor and the Legislature to get up and remedy this thing now," she said, echoing an oft-repeated call to have the state fully fund the regulating district.
The regulating district historically generated most of its revenue by assessing downstream hydroelectric companies, but a federal appeals court in 2008 ruled those charges conflicted with the Federal Power Act.
In 2010, the regulating district approved a plan to recoup the lost revenue by charging the five counties downstream of the Conklingville Dam in Hadley - Albany, Rensselaer, Saratoga, Warren and Washington - because the dam, which holds back the Sacandaga River before it meets the Hudson River, prevents flooding in such municipalities as Albany, Troy and Glens Falls.
The regulating district did not consider charging individual property owners for flood control and also did not consider charging the other seven counties within the regulating district's boundaries, including Fulton and Hamilton, because they don't receive the same levels of flood control, according to the court.
The downstream counties challenged the regulating district's assessment method in state Supreme Court in 2010, but the lower court dismissed the challenge last spring. The appeals court declined to reinstate the challenge.
The court said the district's method "cannot be deemed arbitrary and capricious," echoing the opinion of a state Department of Environmental Conservation attorney cited in the ruling. "The district's method may not be the best or only method, but it is consistent with a state statute, which does not specify a particular methodology or the factors that must be considered," the court said.
But the judges said the regulating district's "failure - without explanation" - to consider assessing fees to the state "strikes us as irrational." The counties noted in the appeal that there are 800 bridges and 5,300 miles of state highways that receive flood-protection benefits from the lake district - a point repeatedly made in court by Schachner.
"We argued strenuously that one of the regulating district's numerous mistakes was not subtracting the benefit accessible to the state as required by the statute," he said.
The regulating district told the judges it has no authority to compel the state Legislature to pay assessments, but the court rejected that argument, and ordered the agency to recalculate its assessments to include the state.
"If the court says the state has to do it, they're going to have to do it," Farley said.
Clark said figuring out new assessments will take some time, but it will be done well before the end of the year.
"The format's in place, the methodology is in place. and, quite frankly, the institutional knowledge is in place, because we just did it two years ago," he said.
Without its primary source of revenue, the regulating district has for three years fallen behind on county, town and local taxes on its Sacandaga River and Great Sacandaga Lake property, which covers eight towns in three counties and six school districts.
The Hudson River portion of the district last summer borrowed funds from the Black River section to pay about $3 million for two years of back taxes to Fulton County, local towns and villages and the Mayfield, Northville and Broadalbin-Perth school districts after they successfully sued in state Supreme Court. The county government and schools last month took steps to begin the legal process to recoup this year's unpaid taxes.
Hamilton County supervisors also have approved a lawsuit to recover about $120,000 in unpaid taxes for three years, but the suit has not been filed. Saratoga County is considering legal action but has not taken formal steps.
Thursday's decision was the second court victory for the regulating district in two months. A federal appeals court in March declined to reinstate a lawsuit that had been brought by National Grid that said the district's assessments along the shoreline were unconstitutional.
Bill Pitcher is the city editor and can be reached at email@example.com