A network of pipelines, seen on Aug. 23, 2018, snakes through a portion of the Greater Prudhoe Bay Unit on Alaska’s North Slope. (Photo by Yereth Rosen/Alaska Beacon)
Five Alaska mayors voiced concerns about how a proposed tax break for the Alaska LNG gas line project would impact their communities.
Republican Alaska Gov. Mike Dunleavy has proposed eliminating property taxes and other local taxes for the $46 billion megaproject. Instead, his bill would impose a volume-based tax when substantial quantities of gas are delivered from the North Slope.
The Alaska Department of Revenue estimated Dunleavy’s bill would equate to a roughly 90% reduction in property tax revenue, once the pipeline is at full capacity. The state agency has said the pipeline will not move forward without cutting property taxes for Glenfarne, the New York-based developer of the proposed pipeline and export facilities.
Five Alaska mayors on Friday testified to the Senate Resources Committee in support of the 800-mile pipeline, which is set to run from the North Slope to Cook Inlet. But the municipal leaders also expressed concerns about the potential loss of revenue from the governor’s tax break and the impacts on municipal services.
‘Bottom offer’
Peter Micciche is mayor of the Kenai Peninsula Borough, one of Alaska’s largest with roughly 62,000 residents. He said a liquefaction facility, equating to 43.5% of the total project, is set to be located in the coastal region.
Micciche said the project would have tens of millions of dollars of impact annually for the Kenai Peninsula, with costs set to be borne by local communities under Dunleavy’s bill. He said the proposed elimination of all local taxes for Alaska LNG is “cutting deep into the fabric of how our communities work. And that worries me.”
He cited concerns about Dunleavy’s proposed tax rate rising by 1% annually. He said the borough’s budget increases on average by 2.5% each year, meaning that would leave the Kenai Peninsula “underwater.”
“Costs have shifted from the state to the municipalities. But we simply cannot afford additional costs,” he said to lawmakers Friday.
Micciche, a former long-time oil and gas executive, emphasized that he is excited by the project, but he considers the governor’s tax break to be “a bottom offer.”
Adam Prestidge, president of Glenfarne Alaska LNG, on Monday told the Senate Resources Committee that the company recognizes there will be impacts to municipalities from the project. He said discussions are ongoing with municipal leaders about how the company will cover some costs to ensure communities feel comfortable they “will be taken care of.”
Micciche, a former Republican Alaska Senate president, framed the scale of the challenge of negotiating acceptable legislation for communities and Glenfarne with less than half of the legislative session left until adjournment. “This bill needs a lot of work,” he said.
“We’re ready to sit down and pen a deal that works for everyone — the developers, our community, Alaskans — and I hope to God that comes along with affordable gas,” Micciche said.
‘Once-in-a-lifetime project’
Supporters remain bullish on the gas line’s potential to be an economic boon for Alaska. Former Democratic U.S. Sen. Mark Begich has been hired by the Dunleavy administration to boost the pipeline. He told the Senate Resource Committee on Monday that it was “a once-in-a-lifetime project.”
Glenfarne owns 75% of the project while the Alaska Gasline Development Corp., a state agency, owns the remaining 25%.
Begich and Prestidge declined to answer some questions in detail about the proposed tax break and whether it was at an appropriate rate, citing the need for confidentiality in commercial agreements. Begich implored lawmakers to hold a session behind closed doors to discuss revenue questions with Glenfarne.
Under Dunleavy’s bill, the long-sought gas pipeline is expected to raise over $22.5 billion in new revenue for the state of Alaska. But over the next 36 years, it would also cost roughly $13 billion for local communities compared to current law, according to state projections.
Instead of property taxes, the governor’s bill would impose a volume-based tax of 6 cents on every thousand cubic feet of gas, which would increase by 1% annually. The tax would only be imposed once the pipeline delivers an average of 1 billion cubic feet of gas per day or 10 years after gas starts being produced.
Edna DeVries is mayor of the Matanuska-Susitna Borough, home to around 117,000 people. She said the Mat-Su Assembly believes those thresholds are “far too high” and that they should be lowered so the borough could collect revenue sooner.
DeVries cited a concern common to all five mayors along the proposed corridor for Alaska LNG: the impacts of constructing the pipeline on municipal budgets.
Mayor Chris Noel of Denali Borough, home to 1,600 residents, said that construction would see added costs for waste management, fire and rescue and housing, which would likely be borne by the local community. Denali Borough does not currently collect property tax. But it would get “limited benefits” from the pipeline with no local offtake planned for the borough, Noel said.
“The bottom-line is we cannot subsidize increased costs. We need certainty via an impact payment program during construction that actual costs will be covered by the project,” he said.
Another potential concern: education funding. Alaska’s complicated education funding formula means that as a local community’s total assessed property tax value increases, state contribution for schools is reduced.
Concerned at the ‘precedent’
Mayor Josiah Patkotak of the North Slope Borough said he was concerned at the “precedent” set by eliminating property taxes for oil and gas projects before a final investment decision is reached. Patkotak, also a former member of the Alaska House of Representatives, cited a recent record North Slope lease sale and said oil developers could seek similar tax relief.
The North Slope Borough, based out of Utqiaġvik with 10,500 residents, has a long history of fiercely defending its authority to levy property taxes on oil and gas companies, he added.
Patkotak estimated Dunleavy’s proposed tax break means the borough would collect $12 billion less in revenue compared to current law. He said property tax revenue has been critical for the borough, which funds schools, fire and rescue services, airports and waste management.
Prestidge declined to tell the Senate Resources Committee whether the proposed tax break would be make-or-break for the project. But he said if the bill failed to pass, “It makes it more difficult because it makes the gas more expensive.”
“It creates an incredible amount of uncertainty around the project,” he added.
Patkotak noted that the North Slope would not get any of the gas delivered through the pipeline with no offtake planned for the remote region.
That has long been a concern for Fairbanks, which has a population of 97,000 people. The borough has advocated for a $180 million spur to deliver gas to the Interior city.
“We need to make sure we’re getting Alaskans’ gas to Alaskans,” said Mayor Grier Hopkins of the Fairbanks North Star Borough.
Hopkins said there are currently “no concrete” plans to build a gas offtake for Fairbanks, but discussions are ongoing with Glenfarne.
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