PROVIDENCE, R.I. (WPRI) — The city of Providence will pay $10.7 million to the owners of the Manchester Street Power Station in a settlement of a lawsuit over the company’s tax bills.

Manchester Street LLC, one of the city’s largest taxpayers, challenged both its real estate and tangible tax bills for 2020 and 2021, claiming the city vastly overestimated the value of the company’s property.

The 516-megawatt power station along the Providence River on Point Street, recognizable for its trio of tall smokestacks, helps generate electricity for the region. The historic plant was constructed in the early 1900s.

The large settlement will be paid over two years as a credit to the company’s tax bills, in eight installments starting this July.

In the original lawsuit filed in Providence Superior Court, Manchester claimed the former tax assessor valued the company’s three real estate properties at $224,849,000 in 2019, and sent a tax bill in 2020 based on that number. But the city assessed the same properties at $43,661,484 in 2021, a dramatic decrease in value.

“The 2020 property taxes imposed against the property are excessive and illegal,” the lawsuit claimed.

The company was also disputing the value of its tangible property, which is equipment and other non-real estate property that is taxed by the city. The lawsuit claimed the city counted some property as both real estate and tangible property.

The city settled the lawsuit in January, reaching an agreement on the power station’s property value and agreeing to pay the $10.7 million credit. The settlement values the power plant’s tangible property, which includes holding tanks, higher than the cost of its real estate.

The city will pay about $5.2 million in the upcoming fiscal year towards the settlement, according to spokesperson Patricia Socarras.

Much of Providence’s land is tax-exempt, since the large nonprofit institutions including universities and hospitals do not have to pay property taxes. That means the largest taxpayers are private businesses, apartment buildings and for-profit medical systems.

The large settlement comes as Mayor Brett Smiley and the Providence City Council are working to close a budget deficit estimated to be $11 million for the upcoming budget year. (The full deficit is about $22 million, according to the Smiley administration, but half of it would be covered by COVID relief funds.)

Smiley is proposing to raise residential property taxes to help close the deficit, while also proposing to cut commercial taxes. Smiley says the previous administration cut residential taxes too low.

At a City Council Finance Committee meeting earlier this week, members of Smiley’s administration disclosed the “large tax settlement” as one of many fixed costs that made it difficult to balance the budget this year.

Gina Costa, the internal auditor appointed by the City Council, questioned why the high-value settlement had not been brought before the council.

Socarras said a city ordinance exempts the administration from needing to bring tax appeals before the Committee on Claims and Pending Suits.