Gov. Mike Dunleavy proposed a bill Friday offering tax breaks for a planned natural gas pipeline from the North Slope to Southcentral Alaska.
The bill would exempt the Alaska LNG project from local taxes, including a 2% annual statewide property tax and local sales and use taxes. They’d be replaced by a tax on the volume of gas flowing through the pipeline once it comes online.
In an interview with KDLL in Kenai, Dunleavy pitched it as a “restructuring” of the state’s tax laws in an effort to make the project pencil out.
“This makes Alaska a little more competitive, because our costs are higher to begin with, way up here in the top of the world,” Dunleavy said.
Dunleavy says the project would be worth billions of dollars in state and local tax revenue. Spokesperson Aimee Bushnell said the Department of Revenue plans to release a more detailed analysis ahead of a hearing on Wednesday.
Early indications, though, are that the tax change would likely amount to an order-of-magnitude reduction in the project’s tax burden.
A 20-mill, or 2%, tax assessed on the project’s last public cost estimate, $44 billion, would yield $880 million in annual property tax revenue.
A six-cent tax per thousand cubic feet of gas applied to the planned average throughput of the line, 3.1 billion cubic feet per day, would raise roughly $68 million per year, a 92% tax reduction. The six-cent tax would only come into force once the pipeline reached 1 billion cubic feet of throughput per day.
The six-cent tax would rise 1% a year — notably, less than the Federal Reserve’s 2% target for inflation.
A consultant working with the Legislature on oil and gas issues identified property tax relief as a way to make the project more economical in a presentation last year.
Local leaders in municipalities that the pipeline would pass through have expressed concerns about the impact of the changes on local taxpayers.
When Dunleavy floated a property tax cut for the project in December, some local officials said the increased demand for municipal services associated with a boom in pipeline construction would strain boroughs’ budgets and force local taxpayers to effectively subsidize the project.
Five mayors have been working together with the state’s gas pipeline agency, the Alaska Gasline Development Corp., since January to work out a solution, said Fairbanks North Star Borough Mayor Grier Hopkins.
“This is the bill that we've been discussing,” Hopkins said. “But it's not language that us as the five municipal mayors have agreed to.”
Among his top priorities is ensuring Fairbanks has access to affordable gas from the project from a spur off the main pipeline, Hopkins said. In fact, the bill specifically excludes spur lines from the tax breaks it affords the larger project.
Ahead of the bill’s release, Kenai Peninsula Borough Mayor Peter Micciche said he was worried that cutting local taxes during construction and ramp-up would result in local taxpayers effectively subsidizing the project.
“A fair deal is a fair deal, and fair deals are hard to do quickly,” Micciche said at a recent Borough Assembly meeting. “We want to make sure that we have our costs covered for our community.”
Lawmakers on Friday said they would review the bill closely. Legislative hearings on the bill are scheduled to begin Wednesday. Sen. Cathy Giessel, an Anchorage Republican who is scheduled to chair a Senate Resources Committee hearing on the bill on Friday, said she planned to invite local mayors to testify.
Dunleavy encouraged lawmakers to move the bill forward promptly. He said the U.S. and Israel’s war with Iran — which has damaged energy infrastructure and led Iran to functionally close the Strait of Hormuz, a chokepoint for energy shipping — gave the project new urgency.
“You'd hate to stumble on this because we didn't move fast enough in the Legislature, and I have faith that the Legislature will move quickly,” Dunleavy said.
The private developer working with the state to advance the Alaska LNG project, Glenfarne, said Alaska’s location offered Asian customers an unimpeded route. Glenfarne applauded the bill in a lengthy statement on Friday.
“Acting swiftly on this measure is the most important step the Legislature can take to ensure that Alaskans will finally benefit from bringing Alaska’s North Slope natural gas to market,” reads a portion of the statement from Glenfarne Alaska President Adam Prestidge.
The company has yet to make a final decision on whether to build the pipeline. Prestidge is scheduled to present an update on the Alaska LNG project to lawmakers Monday afternoon.
