New London — A newly-approved agreement to develop State Pier as an offshore wind hub doesn’t directly bring in any additional tax revenue to New London, a distressed municipality where 44% of its properties are tax exempt.

But Mayor Michael Passero says provisions in the deal between the Connecticut Port Authority and Ørsted and Eversource, when coupled with a side host agreement, have met and are likely to exceed tax revenue expectations.

The host agreement with Ørsted and Eversource — agreed to in principal but not yet signed and not provided to The Day — will provide the city with what Passero says is an average of $1.3 million per year over the course of a 10-year agreement, the mayor said.

Provisions in the agreement could double that amount but rely on a timely completion to the $157 million in pier upgrades and a commitment by the state to buy more offshore wind power.

“We are confident that the transformation of State Pier will deliver many benefits to the City of New London now and for years to come. The city has been a tremendous partner, and we salute Mayor Passero and his team for all of their support to-date and hard work to finalize a host community agreement, which will deliver significant new revenue to New London,” joint venture partners Eversource and Ørsted said in a statement.

“Expanded operations at State Pier will also bring additional economic activity along the New London waterfront area, boosting local businesses who provide goods and services within the vicinity of the port,” the statement reads.

Passero, who in the past has been critical of the state’s use of the pier as a commercial enterprise without the corresponding revenue to the city, said the agreement was months in the making and adds the much-needed revenue the city seeks.

Back in September, Passero said he huddled with the former tax assessor to gather information on not only what the pier was worth now but in also in 2022 when the pier upgrades are expected to be completed and the property is presumably worth much more.

A review of city assessment records by The Day in 2017 shows a $22.8 million assessed value for State Pier. Under the city’s current 39.9 mill tax rate, the pier would bring in roughly $1.2 million in taxes. Passero said that was a baseline for use in negotiations. The state pays $125,000 in PILOT funds, a small portion of what a tax generating property would bring in.

The city, under the host agreement is expecting $750,000 per year in direct payments over the next two years of the agreement and $500,000 per year in future years of the agreement from Ørsted and Eversource.

Written into the agreement are provisions to cover previous commitments by the state totaling $250,000, including $125,000 in state PILOT funds and another $125,000 associated with associated with revenues and impact fees from port operator Gateway. Passero says Ørsted has agreed to cover any shortfalls in future PILOT funds from the state — which the city estimates would triple once the work at the pier is completed.

The city could see another $250,000 per year over eight years of the agreement if the project is completed on time — 25% of the Port Authority’s $10 million. There is $250,000 per year added if the state pursues another 400 megawatts of power, $500,000 a year for the city of the state buys 800 megawatts.

Passero said those annual payments would be retroactive to year three no matter when they happen. The city will be at the negotiating table should Ørsted and Eversource extend the contract beyond 10 years.

“We believe we made a fair estimation of what the tax revenue would be over the 10-year period and we recovered it,” Passero said.

Passero said he’d discounted an attempt to challenge the state on whether the land becomes taxable once State Pier is transferred from the state Department of Transportation to the Connecticut Port Authority.

State Statute Sec. 12-88a, “Application of property tax to real property acquired by a quasi-public agency but not held or used for purposes of such quasi-public agency,” creates taxable property under certain conditions.

Both the governor’s office, through a spokesman, and the chairman of the Connecticut Port Authority, said the statute was not applicable in this case.

“CPA is not subject to taxes because the property is used in the furtherance of our primary mission, advancing the maritime economy, and because there is a pilot payment being made,” Connecticut Port Authority Chairman David Kooris said in an email response to The Day.

Sections of the statute say taxes may be assessed by a municipality if the property “is not during an assessment year held or used in furtherance of one or more purposes of such quasi-public agency,” but not if “grants or payments in lieu of property taxes are not otherwise being made to a municipality.”

Passero said the state “obviously is going to take the position, right out of the box, that their agreement with Ørsted is one of their public purposes.” Even if the city thought it had a case, Passero said the city would be hesitant to tie up any potential revenue in costly litigation.

“What’s the alternative? Not apply for PILOT and instead send the CPA a tax bill and risk losing $20 to $30 million over 10 years?” Passero said. “I can’t run the gamble of potentially losing $30 million for the City of New London and taking legal battle stations over it. We do not have enough of a basis to say they are going to be responsible for property taxes under this law.”

Passero said there is the additional specter of the CPA fighting any tax assessment handed to them by the city, something that typically occurs with larger corporations when hundreds of thousands of dollars are at stake.

“We’ve been working out a deal with them almost since they started negotiating with the state for a Harbor Development Agreement,” Passero said.

The pier agreement involves redeveloping State Pier for use to transport offshore wind components to its lease areas, and would be accomplished by filling in the area between the two existing piers to create additional storage space.

The work, which has yet to be permitted, is expected to be completed by 2022. If the host agreement deal is signed, New London can expect a $750,000 injection into the proposed budget presented to the City Council in April.

g.smith@theday.com