Media Archive

B&A system bankruptcy trustee's request

Article from The Piscataquis Observer, Vol. 165, No. 7, February 12, 2003

To the editor :

This is a story of patience, perseverance and economic stress in one small central Maine community. Whether this story has a satisfactory ending will depend largely upon a ruling to be issued shortly by a Federal Bankruptcy Court judge in a Portland courtroom.

The town of Milo in eastern Piscataquis County has a long history and tradition as a railroading community. The town and surrounding area has been struggling through the past decade with many of the problems common to small, rural Maine communities loss of manufacturing jobs, a shrinking tax base, the out -migration of young families in search of more economic opportunity, escalating property taxes for those left behind and the myriad of other ills that accompany economic downturn. The community, as a whole, has met these challenges on a daily basis, coping with today and pro-actively working on regional economic development plans to build a better, more secure, economic future.

When the Bangor & Aroostook railroad (B & A), then Milo's argest taxpayer, was forced into bankruptcy by some of its creditors two years ago, the town remained confident and patient confident that this particular fiscal crisis could be overcome, confident that a buyer could be found for the railroad and return it to financial stability, and patient in the belief that the $300,000 in property taxes owed to the town would be paid as soon as the sale of the Railroad was completed. That sale took place on Jan. 8 of this year, when a group of investors purchased the assets of the B&A for $50 million and the proceeds from the sale were turned over to the court-appointed trustee, Boston attorney James Howard, for distribution to the long list of B & A creditors.

Historically, payment to creditors in bankruptcy proceedings has been made in an order long-established and set by law : first, tax liens are settled, next secured creditors are paid, then administrative claims against the proceeds and finally other unsecured creditors are paid if there are any funds remaining. In the case of the B&A proceeding, Court documents indicated that the B&A owed far more to its creditors than the $50 million sale proceeds thus the order in which claims are to be paid out becomes critical to the process. The town of Milo remained confident by law, tax liens are settled first. Payment of the $300,000 owed the community for unpaid property taxes since 1999 would be forthcoming shortly. The budgetary shortfalls and cash flow problems created by railroad's bankruptcy were about to end.

That hope was shattered, at least temporarily, when the attorneys for the trustee filed a petition with the Bankruptcy Court two weeks ago to change the order in which claims against the sale proceeds will be paid. The trustee, through his attorneys, Verrill & Dana of Portland, is asking that the judge allow the payment of administrative costs (including attorneys fees) to take top priority and be paid first, with the taxes owed the communities moving to the number three position for payment, essentially guaranteeing that the towns will receive only a fraction of what is owed them. The petition asks that the judge allow payment of $1.9 million dollars in outstanding property taxes owed to 50 or so Maine communities with $245,000. Other taxpayers within those communities would therefore be placed in the position of shouldering the burden of the tax revenue shortfall thus created. In the case of Milo, the shortfall would approach $225,000 dollars and would have devastating effects on this small community. Administrative claims (including attorneys fees), however, would be assured full payment by virtue of their new position as first in line to be paid. The petition is currently scheduled to be heard by Judge James B. .Haines Jr. in Portland on Wednesday, Feb. 12.

If Judge Haines grants the trustee's petition, changing the order in which a bankrupt entity's obligations are paid, it will set a precedent for our State and will create the opportunity for additional petitions in similar bankruptcy proceedings in the future. This petition is an assault on valid Maine Tax lien processes and puts into jeopardy the right of all Maine communities and their citizenry to rely on the full payment of legally assessed taxes. The town of Milo will now wait patiently, confident that Judge Haines will see the Trustee's petition for what it is - a request for court-sanctioned, legalized tax evasion, with Maine cornmunities and their residents serving as the victims.

Jane S. Jones
Milo Town Manager

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