With eye on phone companies, city sees funds looking up

By Danielle Dreilinger, Globe Correspondent  |  June 22, 2008

Imagine you're planning a city budget. But the economy's sluggish, state aid is basically flat, and property taxes have reached their limit. Too bad money doesn't grow on trees.

Except now it might. Or on telephone poles, at least.

This year, Somerville and other communities in Massachusetts are anticipating a new source of revenue: taxing phone companies for their poles and wires on public property.

The $104,000 from this source would be a fraction of Mayor Joseph Curtatone's proposed $176,778,996 budget for the fiscal year starting July 1, and would be dwarfed by the projected $58 million from state aid and $92 million from various property taxes.

Still, in these tight times "everybody should care about any revenue that can come our way," said Alderwoman Maryann Heuston, who heads the Board of Aldermen's Finance Committee.

The money came into play because of a March appellate tax board ruling. Before that, telephone companies were exempt from this tax because of a nearly century-old law that aimed to encourage companies to build out their networks, said Geoffrey Beckwith, executive director of the Massachusetts Municipal Association.

Electric companies already pay a tax on their poles and wires on public land, Beckwith said. When NStar shares a pole with Verizon, "the electric company will pay tax on its half" but the phone company doesn't. Cable companies pay as well, though Beckwith was concerned that they might try to get an exemption.

In its ruling in March, the tax board determined that nothing in the law specifically states that phone company equipment on public land was exempt.

Verizon spokesman Phil Santoro said in an e-mail that the exemption was needed as an incentive for "investment in communications networks, including the expansion of broadband services."

"We're willing to do our fair share to generate state and local tax revenues," Santoro wrote, but added that "we pay taxes where others don't. . . . Telecom services are one of the few commercial services subject to state sales tax."

Curtatone countered by calling the exemption "just another form of corporate welfare," and said that making the phone companies pay is a matter of "spreading the tax burden."

With Curtatone heading the Massachusetts Mayors' Association, Somerville has been a leader on the issue, Beckwith said.

And now, Somerville has joined Newton, Boston, and Cambridge in filing an appeal with the tax board, contending that the amount of taxes ordered by the state Department of Revenue is inadequate.

According to Somerville Assessor Dick Brescia, Somerville originally expected about $900,000 a year, based on the Boston city assessor's estimates.

Beckwith said the tax revenues could be even higher if taxes are imposed on switching equipment, which currently isn't taxed.

Taxing poles, wires, and switching equipment would bring in at least $78 million to $80 million statewide per year, he said.

That could rise to about $140 million if the Boston assessor's original projections were used.

The companies claim they will pass their costs on to the consumers, said Beckwith. He disagrees with their doing so. "Massachusetts consumers already have among the highest rates," he said. "They're just using these tax loopholes and the money goes right to their bottom line."

Heuston considered the tax a fair exchange.

"We have a lot of wear and tear on our cities because of the utilities," she said, adding that Verizon doesn't maintain its poles well. "We should be able to recoup some of the money."

Santoro said that "utility poles in Somerville are the responsibility of the electric company."

Verizon has appealed the tax board's ruling, and the Supreme Judicial Court has taken it up, Brescia said.

With the case in limbo, the state Department of Revenue said Somerville and other cities can collect the taxes, but "you basically have to put it in escrow," said Curtatone.

The court case isn't the only tussle the city has with utility companies.

NStar's response to recent complaints about power outages in Union Square was to start the work without informing anyone or getting permits from City Hall, Heuston said.

At a June 12 board meeting, aldermen discussed denying all the utility companies permits to make them take notice.

"I don't doubt that it will happen," Heuston said in an interview a few days later.

As for the taxes on telephone poles and wires, Curtatone would like the state Legislature to "just close the loophole," making the court battle moot.

But Brescia said Verizon's appeal "could take years to resolve."

"I'm confused, too," Brescia said. "All I see are poles, wires over public ways."