Thanks to a sweetened tax deal made with the town of LeRay, an Albany energy company is ready to retrofit a former coal plant at Fort Drum to produce biomass energy.

After rejecting the first payment-in-lieu-of-taxes proposal June 14, council members unanimously approved a new deal with ReEnergy LLC on Friday that includes payments from the company for sales tax revenue that the town would have lost, because the property will be removed from its tax roll under the five-year term from 2014 to 2018. The payments in lieu of sales tax will total $124,504 over the term.

The sales tax deal is a separate agreement negotiated between the town and ReEnergy; it will not change the terms of the original five-year tax break also approved by the town Friday. That PILOT agreement already was approved by the Jefferson County Board of Legislators on June 5 and Carthage Central School District on June 11.

Under the deal, ReEnergy will pay 50 percent of the property taxes it normally would have owed, on an average property assessment of $30 million a year. That will amount to $118,071 for the town over the five years, after which the full property tax will kick in.

At Friday’s meeting, ReEnergy CEO Larry D. Richardson said the energy provider now is set to break ground on the conversion project within the next month, with the goal of finishing the plant by the start of next summer. The project is expected to create 33 jobs at the plant and 144 at lumber companies in the region, which will collect leftover forest material and convert it into wood chips that will fuel the plant.

“This deal was an important part of the funding for the project,” Mr. Richardson said. “We’re pleased that it addressed concerns the board had with sales tax issues. We knew it was a sensitive issue after the original vote and had dialogue with the town to work it out.”

The plant will generate 60 megawatts of power, more than enough to fuel the 28-megawatt post. Adding to the to the coal- and wind-powered energy provided here, the plant is expected to be a stable source of green energy in the north country, ReEnergy facility manager William M. O’Reilly said. It will also meet the Army’s goal to make its base operations more environmentally friendly.

“By providing green energy to the post, Fort Drum will be ahead of the game,” he said. “It will also improve the post’s standing if there’s another round of base closures announced.”

The project will be finished quickly, Mr. O’Reilly said, because most of the equipment that will be used already is installed.

“We already have the boilers, turbines and steamers, so all of the changes we’re making will be for the fuel operation,” he said, adding that the project could start in two weeks.

LeRay officials said Friday’s decision may set a precedent for towns and villages that participate in PILOT negotiations in Jefferson County to follow. Right now, property — such as ReEnergy’s — becomes tax-exempt whenever a PILOT is enacted, reducing the sales tax revenue that municipalities receive from the county.

The county’s 3.75 percent sales tax take is shared with the towns and villages. Jefferson County receives 47 percent, the city of Watertown gets 24 percent and the remaining 29 percent is divided among towns and villages based on their total taxable assessed value.

Councilman Samuel J. Biondolillo, who voted against the first proposal, said he was pleased that officials from the energy company addressed the town board’s concerns about sales tax it would have lost. The plant’s assessment now is $10 million.

“This issue has now been brought to light, and towns that negotiate future PILOTs will bring up the issue of sales tax,” he said.

Although he originally voted in favor of the project, Supervisor Ronald C. Taylor said that he was pleased with how board members held their ground on the sales-tax issue. He said he hopes the decision will spur Jefferson County officials to restructure the way tax breaks work so that towns and villages won’t lose sales tax revenue.

“This wouldn’t have been an issue if the county would have addressed it like we asked,” he said. “Unless county administrators change the sales-tax distribution for tax breaks, I’m sure every town is going to get more involved in negotiations. The (county) needs to address the issue.”

Steven T. Harter, administrative clerk to the supervisor, led the effort to bring into the limelight the sales-tax issue, which he said has flown under the radar for years. Losing sales tax revenue can take a heavy toll on towns and villages, which are trying to save every penny they can.

During negotiations, county administrators rejected a town proposal that would have allowed ReEnergy to receive a tax break while keeping the property on the tax roll. That deal would have allowed LeRay to keep its sales tax revenue while not affecting the company.

“This definitely sets a precedent,” Mr. Harter said of the LeRay vote. “But this still doesn’t address the issue of sales tax revenue that could be corrected at the county level and fix all of these side agreements.”

LeRay board members pressed the issue because they felt obliged to support taxpayers and residents who would be affected by the revenue loss, Mr. Harter said.

“The board had the guts to stick it out by saying no to the first deal,” he said. “They felt the responsibility to look out for their taxpayers when some folks from other levels of government aren’t doing it.”

The project is set to receive final approval at the Jefferson County Industrial Development Agency’s board of directors meeting July 12.

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