Media Archive

B&A tax settlement expected soon

Article from The Piscataquis Observer, Vol. 165, No. 17, April 23, 2003

By Jessica Lee
Staff Writer

MILO The attorney representing the trustee in the Bangor & Aroostook System bankruptcy said this week that a settlement on back taxes owed towns is in the making.

But the settlement will not relinguish 100 percent of the approximately $1.2 million owed to Maine towns, including Milo and Brownville, according to Roger Clement of the law firm Verrill & Dana in Portland.

Clement is representing bankruptcy trustee James Howard in the proceedings.

The attorney said Monday that recent media reports that the towns will receive 100 percent of back taxes owed are incorrect. About 20 Maine towns formed a coalition headed by attorneys at Eaton Peabody in Bangor and Augusta to dispute the trustee's request to charge a 35 percent sur-charge on the back taxes. This would have imposed a charge of more than $100,000 on the town of Milo, alone, which is owed more than $300,000 in back taxes.

"The trustee [Howard] is asking the court to charge the towns for some of the benefit given to the towns, by keeping the railroad in business, keeping it alive, and ultimately selling it at a high enough price to pay claims," Clement said.

The federal bankruptcy court approved a deal last fall that allowed the B&A to. sell its assets, but not its name or operations, to Rail World Inc. for $50 million. The buyer changed the name to Montreal, Maine and Atlantic Railway.

Clement said that Howard has "protected and preserved the property that the towns have a lien on," and that he is "entitled to charge" the towns for that service.

"The bankruptcy code which governs applicable law provides that the trustee can charge secured creditors,
including towns, for the benefit that was given to secured creditors," he said.

In addition. Clement pointed out that the towns would not have been able to foreclose on the properties, despite liens, due to federal law that protects railroads from foreclosure.

"Federal law prohibits any creditor from foreclosing on an operable railroad," he said, explaining that if one mile of a 1,000 mile railroad were foreclosed on, the entire railroad is then defunct.

The attorney said he could not "divulge the details" of the proposed settlement, until it has been signed by all parties and approved by the U.S. Bankruptcy Court in Portland. He did say "there is definitely a charge" included in the proposal. If the towns are unhappy with the settlement, he said, there is a way for them to oppose it. In two weeks to a month, Clement said the issue should be finalized.

"I think we'll have a deal that everyone will be happy with," he said.

Tom Brown, attorney with Eaton Peabody, the law firm representing the towns, cautioned that everything even the proposed tax settlements - is subject to the review by the bankruptcy court. If the proposal is acceptable to the federal judge, he said, it may be a month before the towns receive checks from the B&A.

Milo Town Manager Jane Jones said selectmen authorized a settlement with B&A that will amount to 70 cents on the dollar on the approximately $300,000 owed. In addition to back taxes, the town agreed to settle the issue of the credit enhancement agreement held with the B&A.

"This is a way of cleaning everything up in one agreement, and putting an end to the haggling," said Jones.

If the town did not agree to the settlement, she said, the cost of legal expenses would double from the present $40,000 to about $80,000. "This was a decision the board agonized over," Jones added.

Brownville selectmen unanimously voted at their April 10 meeting to receive 100 percent of the tax revenues due from the B&A (about $40,000) and to pay the cost of collecting those taxes to the attorney representing them (about $13,000).

Other Maine towns who joined in the fight to receive back taxes from the B&A include Hermon, Presque Isle, Bangor, Hampden, Medway, Patten, Houlton, Portage Lake, Easton, Van Buren, Mapleton, Caribou, Millinocket and East Millinocket.

NOTE - This article reflects the views of the author and not necessarily those of the TRC Alliance Team.