Media Archive

Tug-of-war growing over B&A taxes

Article from The Piscataquis Observer, Vol. 165, No. 5, January 29, 2003

By Jessica Lee
Staff Writer

The prospect of Maine towns receiving back taxes owed by the Bangor & Aroostook Railroad System is looking more bleak.

Towns heard this week that the trustee representing the bankruptcy court in the process, James Howard of Boston, has filed a petition that could drastically impact those payments.

Milo Town Manager Jane Jones said Tuesday that the trustee is seeking to alter the order in which tax liens are settled. In a typical bankruptcy proceeding, tax liens are paid first, with secured creditors paid next, with the legal and administrative costs of the bankruptcy procedure coming in last.

Howard has petitioned the bankruptcy court to reverse that order, giving the legal costs first dibs and the tax liens falling last.

That means Milo may receive a mere $70,000 on its $300,000 debt, Jones said. The town also is in a unique position, due to the credit enhancement agreement with the B&A which may mean Milo will have to pay back to the court a sum of about $35,000.

A hearing on the petition is set for Wednesday, Feb. 12 in the U.S. Bankruptcy Court in Portland.

"This is a direct assault on Milo's tax structure," Jones said, as local taxpayers will have to foot the bill for the unpaid sum, on the 1999, 2001 and 2002 budgets.

"If the judge allows the petition ... grants it, that will unbalance the municipal budget," said Jones. "Those taxes were duly assessed."

She said the trustee filed the petition, based on one paragraph in the federal bankruptcy code that says the court may subordinate the tax liens to other creditors under certain circumstances. However, it is used rarely.

"It has the potential to be devastating," Jones said, as it could set a precedent to any individual or business filing for Chapter 11 bankruptcy. She said that the town is now "mounting very strong opposition to the petition."

"I'm now trying to make as many people at the state level as possible aware of the issue, because this could shake the foundation of Maine's tax law," she said. "I'm reaching out to senators, representatives and the governor's office."

The Town of Brownville also is owed back taxes, in the amount of about $30,000, according to Town Manager Sophie Wilson. She said Brownville will fight the request.

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