The Niagara County Industrial Development Agency will ask the state’s highest court for permission to appeal a recent ruling that nullified the agency’s tax break agreement with AES Corp. in Somerset.

Following an hour-long executive session Wednesday afternoon, IDA board members directed their outside legal counsel, Richard Sullivan of the Harris Beach firm, to formally request that the Court of Appeals review the findings of the State Supreme Court Appellate Division, Fourth Judicial Department.

The Appellate Division issued a ruling last week that invalidated a 12-year, $192 million payment-in-lieu-of taxes deal between the agency and the owners of the Somerset power plant.

IDA officials expressed fears that provisions of the ruling could prevent the agency from accomplishing one of its core missions — attracting new development projects through incentive programs.

“The implications of the decision are so very broad in terms of how IDAs operate in this state and, more specifically, this IDA moving forward and our ability to generate economic development, that we are going to ask for permission that this matter be heard before the Court of Appeals in the state of New York,” IDA Chairman Henry Sloma said.

While IDA officials expressed concern about the potential impact of the court ruling on taxing jurisdictions throughout the county, they said the move to appeal had more to do with what they believe will be the far-reaching consequences of the court’s decision.

Of particular concern to the IDA is a portion of the Appellate Division’s ruling that suggested the PILOT agreement was improper because AES failed to supply the agency with adequate financial information that could have been used by the agency to determine if the tax break was indeed necessary.

IDA officials contend no such requirements are found in current law governing the activities of New York’s economic development agencies. They argue that mandating such cost-benefit determinations for future projects would essentially force IDAs statewide into a situation where they would only be able to do business with companies in which financial hardship can be proven. As a result, IDA officials argue the ruling infringes on their ability to work with companies that are financially well off and looking to grow.

“This eliminates our ability to attract jobs,” IDA attorney Mark Gabriele said. “It only allows us to retain jobs.”

Gabriele said the PILOT agreement will remain in effect pending the outcome of the agency’s legal action. He added that, given the gravity of the court’s decision, the agency expects other IDAs across the state to join in its request for a clarification on the need for future tax break deals to include cost-benefit analysis.

“Our concern is that the decision was overreaching as to what the statute said,” Gabriele said.

The IDA granted the 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.

On Friday, the State Supreme Court Appellate Division 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.

The Appellate Division ruling clears 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.

Town officials have expressed an interest in settling the company’s claims out of court.

IDA officials expressed hope such a settlement will be reached in the coming months.

“We have agreed that we stand by our original decision on AES,” Sloma said. “We’re hopeful also that the community under its new leadership would work with the company to come up with a host community agreement, if possible.”

Contact reporter Mark Scheer at 282-2311, ext. 2250.