Cumberland to pay Pawtucket water board

01:00 AM EDT on Thursday, October 25, 2007

By John Castellucci

Journal Staff Writer

PAWTUCKET — An out-court-settlement has been reached in the long-running tax dispute between the Pawtucket Water Supply Board and the Town of Cumberland, with Cumberland agreeing to rebate more than $1.5 million in tax payments and the water board promising to use $1 million of the rebate to blunt an expected increase in water rates.

Joseph A. Keough, the Water Supply Board’s lawyer, told the City Council last night that the $1 million will enable the board to seek a lower than expected increase in rates when it applies soon to the State Public Utilities Commission for a rate increase.

Keough said the rest of the tax rebate — some $574,344 — will be applied as a credit to the water board’s tax bill, reducing its tax liability in Cumberland at the rate of $50,000 per quarter over the next three years.

At the heart of the settlement is an acknowledgement by Cumberland that it was wrong to tax the roughly 34 miles of Water Supply Board pipes in town as tangible property, rather than real estate, according to Keough.

The decision of the Daniel J. McKee administration to tax the pipes as tangible property bumped up the town’s assessment on the board’s property to $20 million from $8.5 million in 2002, when it was taxed as real estate.

The decision increased the water board’s Cumberland tax bill by $230,000 annually and set off a dispute that has dragged on for five years.

The Pawtucket board first appealed the assessment to Cumberland’s Board of Assessment Review. When that didn’t work, the board tried to create a two-tiered water-rate structure, with Cumberland residents absorbing the impact of the tax increase by paying much higher rates. That move was rebuffed by the PUC.

The water board also took the town to court, arguing in a civil complaint that the new assessment was illegal.

The basis for that argument was Thurber v. Providence Gas, a 19th-century case that established that pipes in any kind of distribution system may be taxed only as real estate, not as tangible property, Keough said.

The lawsuit was scheduled for trial this summer. Before that could happen, however, Keough and Cumberland’s lawyers reached a settlement on the steps of the courthouse, he said.

“I’m pleased with the settlement, and I’m pleased to recommend it to the council,” Keough told the City Council, which approved the settlement by a unanimous vote.

The first $1 million of the $1.5-million rebate is payable in 30 days, according to Keough. In May, when the tax case was nearing trial, Cumberland Finance Director Thomas Bruce III said that the town has built up its financial reserves in anticipation of a settlement, earmarking $1.2 million since 2004.

As a result, Bruce said, Cumberland would be able to absorb the impact if the case went against the town in court. Mayor McKee called it prudent financial management: rather than spend the money, the town has been putting the water board’s tax payments into an escrow account, he said.

In addition to 34 miles of pipes, the water board owns a water treatment plant in Cumberland. The plant, which is taxed as real estate, contains furniture, fixtures and computer equipment that are being taxed as tangible property.

Starting in 2002, the settlement agreement sets the assessed value of the water board’s tangible property in Cumberland at roughly $200,000 a year.