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Officials seek tax break for private water companies

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Washington, DC, July 18, 2020 | By Madeline Hughes

In an effort to help southern Granite Staters save money for affordable clean water, federal, state and local officials are working to reinstate a tax break for private water companies. 

Ratepayers "shouldn't be significantly burdened because of the federal tax bill," said U.S. Rep. Annie Kuster, D-N.H., when talking recently with representatives from Hampstead Area Water Company (HAWC) and Pennichuck, two private water companies serving southern New Hampshire.

Since a 2017 change, private water companies face a nearly 30% federal tax on any infrastructure donated to them. This includes pipelines built for new housing developments as well as projects like the Southern New Hampshire Regional Water Pipeline, which is being built with state money. 

Since 2018, the tax has cost Pennichuck customers about $2.8 million for $10 million of donated infrastructure, explained George Torres, the corporate controller.

That tax is costing HAWC about $1.5 million on current projects including the regional water pipeline, General Manager Charlie Lanza said. 

The new pipeline will go from Manchester through Derry, Windham, Salem, Atkinson and Hampstead to Plaistow to bring people clean water. The project is being paid for with state money, mainly acquired through a lawsuit settlement with Exxon Mobile. The funds are designated to help those whose well water has been contaminated by methyl tert-butyl ether (MTBE) and other toxins.

Kuster and U.S. Sen. Jeanne Shaheen, D-N.H., are working with bipartisan groups in both the House and Senate, respectively, to try and pass legislation to change the tax.

To absorb HAWC's piece of the pipeline — $27 million of infrastructure —the company will pay about $1.15 million in federal taxes, Lanza said. 

Because the company makes only a few million in revenue each year and operates on thin margins, according to Lanza, the cost for absorbing new infrastructure gets put on to the ratepayers.

HAWC was approached to be part of this project before the tax change, so this expense was totally unexpected, Lanza said. 

For the same pipeline project, Pennichuck gave up control of the water main that goes through Windham connecting Derry and Salem due to the tax burden, COO Donald Ware said. Salem's municipal system will be in charge of that infrastructure because the municipal water system is exempt from the tax.

This tax impacts the water industry more than other public utility industries because of the mix of municipal and private water companies, Ware explained.

One example is that this tax encourages developers to spread out development, relying on wells, which are cheaper, instead of treated water piped into homes. 

"That results in bad planning and decision making for years down the road," said Town Administrator David Cressman. "Instead of smarter-denser growth, this tax creates an incentive to spread out rather than having smart growth."

The hurdle for Kuster and Shaheen is getting this bill passed. The legislation was inspired locally in New Hampshire when State Sen. Chuck Morse, R-Salem, brought it to Shaheen's attention. Both Shaheen and Kuster have introduced the legislation in their respective chambers with bipartisan support. 

Now they are working on getting it passed.

"One way or the other, we will be trying to get this done," Kuster said, adding her goal was to get it to the president's desk by the end of the year.