SALEM — The city announced a three-year deal yesterday with its largest taxpayer, Salem Harbor Station.

Virginia-based Dominion, which owns the power plant, will continue to pay the city $4.75 million a year through 2011 under the agreement, which was announced during a press conference at City Hall yesterday afternoon.

Mayor Kim Driscoll said the agreement will provide "tremendous fiscal stability over the next three years" as cities and towns brace for severe cutbacks and uncertainty.

"These are dollars that will go directly to municipal services, like police, fire and schools," Driscoll said. Several previously cut teaching jobs in lower grade levels will be restored as a result of the deal, she said.

The power plant is, by far, the city's largest taxpayer, and its payments make up 3 percent of the city's total budget.

An eight-year deal with Dominion expired last year. Both sides then negotiated a one-year agreement worth $4.75 million — an increase of $250,000 over the previous year — to buy more time to hammer out the long-term deal announced yesterday.

Still, the payments aren't what they used to be. Ten years ago, the power plant paid $8.7 million to the city. But the annual payment under the new deal is still about eight times more than the city's second-highest taxpayer, Shetland Properties.

Negotiations on the new contract had been underway since June and became serious in the last two months, said Gary Courts, the managing director for Dominion New England.

"It took awhile, but I'm glad to reach an agreement," Courts said.

"Three years is a big commitment for Dominion and very reasonable and fair," state Rep. John Keenan said.

The agreement indicates Dominion plans to keep the 50-year-old coal plant operating for at least the next three years.

"Kim would like to have a 10-year deal," Courts said. "But this is a good place for us to end up."

Courts said Dominion plans to operate the power plant for the "foreseeable future."

"We plan to be here as long as we can continue to make a reasonable adjusted profit," he said.

Technically, the $4.75 million agreement breaks down to a $3 million tax payment and a $1.75 million additional contribution.

Dominion will actually pay less in taxes than the $3.5 million it paid last year. But the total amount it gives to the city remains unchanged.

The agreement next heads to the City Council, which is expected to vote on it on Dec. 11.

"Everyone else is in D.C., looking for a bailout," Keenan said. "That's not the case here."

Staff writer Chris Cassidy can be reached at ccassidy@salem news.com.

THE POWER PLANT'S PAYMENTS

Fiscal yearAmount

1998$8.7 million

1999$8.7 million

2000$8.7 million

2001$8.7 million

2002$7.7 million

2003$6.7 million

2004$4.5 million

2005$4.5 million

2006$4.5 million

2007$4.5 million

2008$4.75 million

2009$4.75 million

2010$4.75 million

2011$4.75 million

Bold = New deal figures