MANCHESTER — A dispute over payments in lieu of property taxes by the Manchester Water Works to the town of Auburn has been settled with an agreement to reduce the tax bill and tie payments to the inflation rate.
Water Works owns 7,200 acres in the Lake Massabesic watershed, 4,000 acres of it in Auburn. Under state law, a water district is liable for the amount of property tax a private owner would pay on the same land.
The agreement means the bill paid by Water Works will drop from this year’s $680,000 level to $300,000 over a five-year period.
Auburn claimed the right to bill Manchester $825,000 under a state law that allows the land to be taxed at the average assessment rate for similar land. The Water Works Commission balked at paying the same rate as owners of property that might ultimately be developed, since the purpose of its ownership was to make sure the land remains undeveloped to protect the water supply from contamination.
Manchester Mayor Ted Gatsas called it a good deal for Manchester, because money that had been going to pay the so-called property tax can now be used to upgrade the city water system.
“We were looking at an $800,000 bill, a tax on property that is never going to be built on,” Gatsas said. “It gives us the opportunity to do replacement of water lines by reducing the cost that we have to pay for property taxes.”
The agreement also means Auburn won’t face the prospect of having its income from the property sharply reduced if Water Works was to go forward with a proposal to sell the property, possibly to a non-profit organization.
Auburn Town Administrator Bill Hermann said several months ago that the Water Works property in Auburn represented 25 percent of the total land in the town and the utility’s payment represented 13 percent of the town budget.
The agreement is the first under a new state law that allows a negotiated payment in lieu of taxes for land a water district owns in a separate community.
The law limits the agreements to a five-year term, which can be renewed for additional five-year periods.
The agreement requires ratification of the final legal draft. Manchester’s payment will fall to $300,000 by 2018, when it will be tied to the rate of inflation — with a 3 percent annual cap.
The Water Works also agreed to continue to lease land to Auburn for a playground, allowing access over the property for future recreational use. It also provides incentives to make sure that the land remains protected even if it is sold in the future.
Water Works officials have estimated that it takes about $600,000 to rebuild 4,000 feet of water main.
Gatsas said when the time comes to determine which water mains are fixed first, Water Works is best suited to make the decision.
“I’m for leaving it up to them,” Gatsas said. “They know exactly what they need to do.”
Manchester Water Works also provides water service in Londonderry, Goffstown, Hooksett, Bedford, Auburn and sells water to Derry and to Pennichuck Corp. a private water utility serving other communities in the southern part of the state.
In addition to the 4,000 acres in Auburn, Manchester Water Works owns land in Candia, Chester and Hooksett.