By: Sean Maguire, Alaska Beacon
Alaska Gov. Mike Dunleavy has proposed eliminating property taxes for the Alaska LNG project to incentivize development of the $46 billion gas line and export facilities.
The bill was introduced to the Legislature on Mar. 20 and would exempt the project from local taxes in Alaska, including property and sales taxes. Instead, a volume-based tax would be levied once the pipeline starts producing significant quantities of gas from the North Slope.
In a statement, Dunleavy said his legislation “removes a structural barrier” that would help get the gas line built. The project is expected to create thousands of construction jobs, spur the development of new industries and potentially lower power and heating bills for consumers.
“We bring more gas into Alaska and stabilize supply — that lowers cost for families like yours and businesses,” Dunleavy said Wednesday on social media.
The state of Alaska is expected to collect over $22.5 billion in new revenue from the project over the next 36 years, primarily from production taxes and royalties, according to state economists.
In addition to exempting the project from property and sales taxes during its ramp-up period, the Alaska Department of Revenue estimates Dunleavy’s bill would equate to a 90% reduction in property tax revenue, once the pipeline is at full capacity.
Municipal governments are expected to take the biggest hit from that change. If the project was built under current tax law, they would collect an extra $13 billion in revenue through 2062, or $360 million annually.
Some long-time lawmakers have questioned whether the pipeline will result in reduced gas prices. Others have questioned why such a sharp reduction in property taxes is needed.
‘Industrial renaissance’
An 800-mile pipeline from the North Slope to deliver natural gas to market has been a dream in Alaska for decades. But prior efforts have all fallen short.
Supporters say its prospects have never been stronger. Key permits are in hand, several Asian nations are interested in buying Alaska’s gas, and President Donald Trump has voiced support for the project.
Former Democratic U.S. Sen. Mark Begich has been hired by the Dunleavy administration to help advance the pipeline. He told lawmakers the 1973 oil shock helped spur development of North Slope oil. Now, war in the Middle East has upended LNG production and raised prices, which makes Alaska natural gas more attractive, he said.
“This is our moment,” he said to the House Resources Committee on Monday, calling the gas line “an incredible project.”
Glenfarne, a New York-based company, signed on to develop the pipeline last January. It owns 75% of the project while the Alaska Gasline Development Corp., a state agency, owns the remaining 25%.
But the economics of the $46 billion gas line remain uncertain.
Glenfarne chose to split the project in two. The first phase would see construction of a pipeline for domestic consumption, with delivery of gas targeted for 2029. The second phase would construct a plant and shipping terminal in Cook Inlet for export.
Alaska’s current tax structure means a 2% property tax can be levied on oil and gas infrastructure.
Dunleavy’s tax proposal would impose a volume-based alternative. A new tax would be levied at 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.
Dan Stickel, economist with the Department of Revenue, on Wednesday said reducing property taxes would help with front-end costs. He said the agency is not examining Dunleavy’s bill as a tax cut because it would help spur the pipeline and potentially lead to new state revenue.
Stickel told the House Resources Committee that AGDC and Glenfarne have said the project will not move forward without property tax relief.
At full capacity, the pipeline is expected to deliver 3.5 billion cubic feet of gas per day. Southcentral Alaska’s demand for Cook Inlet gas equates to roughly 70 billion cubic feet of gas per year.
Adam Prestidge, president of Glenfarne Alaska LNG, said the project would be an “industrial renaissance” for Alaska. It could create 7,000 jobs during construction and spur new opportunities such as data centers, he said.
Wearing a lapel pin in a House Resources Committee hearing that said “build the line,” Prestidge told lawmakers discussions on gas agreements are ongoing with Alaska utilities. He said agreements could be signed and made public in the next couple of months.
“This is the only way to significantly bring down the cost of energy for Alaskans,” he said.
‘Huge give’
The Alaska Department of Revenue estimates the state would receive $22.5 billion in revenue from the gas line through 2062. The majority of that windfall would come from production taxes and royalties.
Compared to Alaska’s current tax regime, Dunleavy’s proposal would see the state miss out on $200 million per year from property taxes once the pipeline is at full capacity, projections show.
The alternative tax structure proposed by the governor would see $64 million per year collected by municipalities at full gas production and $9 million annually by the state.
For municipalities, there would be a bigger hit.
The gas line is expected to be built through four municipalities that collect property taxes: the North Slope Borough, Denali Borough, Matanuska-Susitna Borough and the Kenai Peninsula Borough.
Under Alaska’s current tax structure, municipal governments would be expected to share in $17.3 billion from the pipeline through 2062. Under Dunleavy’s tax bill, it would be below $4 billion.
Anchorage Democratic Sen. Bill Wielechowski, vice-chair of the Senate Resources Committee, spoke at a Tuesday news conference. He said legislators would look closely at Dunleavy’s proposed tax break and determine whether a 90% cut in property taxes is appropriate.
“I don’t know anybody in the Legislature who doesn’t want a gas pipeline. The question is, what is it going to take to get it?” Wielechowski said.
State projections show that under both tax systems, the owners of the pipeline are expected to collect $60 billion over the next 36 years.
Anchorage Republican Sen. Cathy Giessel, chair of the Senate Resources Committee, estimates Alaska has invested $1.1 billion to build a natural gas pipeline, but nothing has been built.
On Tuesday, Giessel cited costs like public safety that could be borne by communities along the proposed pipeline. She said it would likely take until the second phase of the project before 1 billion cubic feet of gas is produced per day. Meaning, it could take years before municipalities collect Dunleavy’s volume-based tax, she said.
“That’s a long time for these communities to have no property tax,” she said.
State data suggests local governments would take $6.3 billion in property taxes through 2042. Dunleavy’s volume-based tax would net them $1.3 billion over the same period.
“This is a huge give to the company,” Giessel said. “Will it still be enough for them? I don’t know.”
Mayors in impacted communities are set to testify on the governor’s tax proposal on Friday afternoon before the Senate Resources Committee.
