Are large utility owners using their deep pockets to force communities to reduce their property valuations below fair market value to avoid paying their fair share of property taxes?
The issue was raised this past week at both the Berlin city council meeting and a meeting of the Coos County Commissioners.
In a presentation to the city council, Mike Waddell, who works for George E. Sansoucy Engineering and Appraisal Service, argued that corporate utility property owners are engaged “in a full-court press to overwhelm New Hampshire’s municipalities.” He said over 100 appeals have been filed by utilities against New Hampshire municipalities including Berlin and Gorham. The former Gorham selectman said the cost to mount a legal defense is prohibitive for many small towns.
The local communities and county are already facing appeals on utility assessments.
Brookfield Renewable Energy Group is challenging its payment in lieu of taxes to Coos County for its 33-turbine wind farm. Berlin Mayor Paul Grenier predicted the dispute will end up in court.
Berlin is one of over 100 communities in the state being sued by FairPoint Communications over the assessment of property taxes on its telephone poles and conduits.
In Gorham, Town Manager Robin Frost said Portland Pipeline has contested its assessment in Gorham every year since 2008. Representing the town, Sansoucy set the assessment at $5.9 million – Portland Pipeline argues it is $3.05 million. The state Board of Tax and Land Appeals consolidated tax years 2008, 2009, and 2010 and held a three-day hearing on the matter.
Frost said the town last year spent $207,560 defending assessment challenges – she estimated at least 75 percent was spent on the Portland Pipeline case.
Waddell said Dalton selectmen were told by a Public Service of N.H. official that the utility feels it has a favorable legislature and court system and most communities are too financially stressed to be able to put up a credible defense. Waddell said the message being put out by utilities is the communities do not have the resources to withstand the “onslaught and should settle for whatever terms are offered”.
Waddell said the “Holy Grail” or objective for utility property owners is to change the current method of valuation for business and residential properties, which is based on fair market value. He said utilities want to use a formula based on book value less depreciation which values property based on its original cost less its paper depreciation. As an example, Waddell said an apartment building constructed for $200,000 in 1984 and depreciated over 29 years, would have a zero taxable value in 2013 under the valuation method favored by utilities.
Waddell said the large and often multi-national utility companies also make it difficult for communities to get information needed to determine valuation. He said many fall under the jurisdiction of the state Public Utilities Commission or the Federal Energy Regulatory Commission and are not required to provide local assessors with construction costs, income, or operating costs except when ordered by the Board of Tax and Land Appeals or the court system.
Waddell cited a letter from PSNH to the town of Dalton after Dalton requested additional information from PSNH. In the letter, PSNH official Len Gerzon said historically the utility “has never provided this level of confidential information, prior to full engagement with the BTLA appeal process”. Forcing municipalities to go to court to get discovery materials puts a heavy financial burden on small communities, Waddell said. He noted many communities are struggling to provide basic services and do not have the financial resources of a utility with a massive legal budget.
Mayor Paul Grenier suggested there should be legislation that bars utilities from appealing their valuation if they have withheld requested information from the municipality.
When a utility proposes a project like the Northern Pass, Waddell said property tax payments to local communities are often cited as a benefit. But after the project is built, he charged utilities then appeal to stop using fair market value for taxation. He said Hydro Quebec used that tactic for its DC line – filing appeals in New Hampshire communities along the line which runs from Comerford Dam to the Massachusetts border.
Waddell said the state Department of Revenue Administration uses what he called the ‘net book method’ or the ‘unit method’ in setting utility values for the state education tax. Under that system, Waddell said older infrastructure tends to be undervalued and the state collects less revenue for state education aid. Furthermore, he said a utility can use the DRA value in court cases to reduce their valuation but DRA is refusing to testify or allow for cross examination by municipalities.
City Manager Patrick MacQueen said the state is shooting itself in the foot by undervaluing utility properties.
“It’s not raising the money it should,” he said. “This is a major problem that needs to be fixed.”
Waddell said local officials need to be educated on the utility assessment issue. He said few people understand utility assessment and why valuation matters.
Waddell said Sancoucy has a winning record in defending municipalities on valuation cases. But he said the cost involved in going to court causes many communities to fold.
Waddell noted the state heavily depends on property tax revenues and for that reason he said taxes should be applied fairly.
Rep. Robert Theberge suggested getting the N.H. Municipal Association involved. MacQueen said there is a need for legislation to level the playing field.
Grenier said he asked Waddell to speak to the council because he wanted to raise awareness of the issue. He said it is an important one for Berlin because utilities make up 25 percent of the city’s total tax base. Grenier said if utility valuations drop, property taxes will spike up.
(Berlin Daily SunReporter Debra Thornblad contributed to this article)
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