The Massachusetts Water Resources Authority of Friday filed a $121 million suit against Massachusetts, alleging the commonwealth's fiscal 1992 budget illegally taxes the authority's ratepayers.
The lawsuit immediately triggered a downward revision of the state's non-tax revenue estimates for fiscal 1992. On Friday, state finance officials dropped the non-tax projections by $350 million -- including the water authority's $121 million -- to more than $4.2 billion from less than $4.6 billion.
"We discounted the $121 million off our revenues because we can't be certain that we're going to collect it," said a spokesman for the Massachusetts executive officer for administration and finance.
The water authority says Massachusetts imposed an illegal $120 million tax in one of the 300 riders on the 1992 budget. The state rejoins that the water authority was fully aware of the payment, which was assessed as part of a debt swap, and is now trying to find a blameworthy party for enormous future rate increases.
Philip N. Shapiro, chief executive officer of the water authority, categorically denied that the state gave authority officials a chance to pass judgment on the budget items.
"It was presented to us as a fait accompli," Mr. Shapiro said. When the authority's management protested after the budget was signed into law, "They said, 'Too bad, we need the money more than you do,'" he said.
If the water authority is unsuccesful in its bid to eliminate or lower the payment levied by the state, it will have to add the change into its spring borrowing, planned for late April or early May. The uncertainty now makes that bonding a moving target, somewhere from $500 million to $800 million, Mr. Shapiro said.
Last week's lawsuit was triggered by an earlier legal action filed by the MWRA Advisory Board, a group representing the 60 communities served by the authority. The advisory board contended in September that Massachusetts was liable for $121 million that households serviced by the water authority were scheduled to pay in the future, and the group sought to prevent the water authority from paying the state.
Massachusetts argued yesterday that the water authority is reneging on an originally amicable debt swap arrangement. In exchange for the $120 million payment, the spokesman said, Massachusetts agreed to assume $176 million of debt incurred by the now-defunct Metropolitan District Commission and formerly on the authority's books.
"We needed cash fast, and they were willing to pay us cash fast if we were willing to takae the lingering MDC debt," said Dominic Slowey, chief spokesman for the executive office for administration and finance. "In the meantime, we've already assumed their debt. We are paying $10 million to $15 million [in annual debt payments] and not getting a penny for it."
Mr. Shapiro said the authority was willing to negotiate different terms for the swap. "Our biggest problem is not the fact that the transaction took place, but that it's $120 million as opposed to $70 million," he said. "Something can be said for doing this at a breakeven level; that is not a transaction where both sides came out even."
The news of the lawsuit comes against the backdrop of improving overall revenues for the state. More than offsetting the reduction of estimates for non-tax income, Massachusetts increased its estimates for tax collections by about $600 million, to $8.9 billion from $8.3 billion for fiscal 1992.
In related developments, the water authority today begins its hunt for an underwriting team to sell its sizable spring borrowing. The authority has prepared a list of 25 questions in its request for qualifications -- a form that will serve both as application for future underwriters and report card for current ones.