Mayors of the five boroughs that would host elements of the Alaska gasline project say they’re not on board with a bill from Gov. Mike Dunleavy offering tax breaks for the project. At least, not yet.
The governor’s bill would replace a statewide 20-mill property tax on oil and gas infrastructure, split between the state and local governments, with a volumetric tax based on the amount of gas flowing through the pipeline. The tax would bring in far less revenue than the property tax — roughly 90% less.
Dunleavy introduced the bill on March 20 after local governments roundly criticized a proposal he floated late last year that would have cut the property tax rate by 90%.
The governor is pitching the bill as necessary to make the gasline pencil out: without a tax break, municipalities would get nothing from the project, because it simply wouldn’t be built, Dunleavy said.
But it’s not quite that simple, Kenai Peninsula Borough Mayor Peter Micciche told the Senate Resources Committee on Friday. Micciche said his borough would see higher costs without corresponding revenue to cover them.
“In my case, below zero is not better than nothing,” Micciche said.
Micciche said he supports the project. The Kenai Peninsula would host the most expensive piece of it, a multibillion-dollar liquefied natural gas export facility that makes up more than 40% of the Alaska LNG project’s total cost.
All that activity, though, means more costs for local taxpayers, he said: more kids in school, more vehicles on the road, more fire and EMS calls, and so on. That means local taxpayers could wind up effectively paying for some of the project’s cost, he said.
“My focus now is to make sure that retirees and working families in the Kenai Peninsula Borough are not subsidizing a very, very large project,” Micciche said.
The existing 20-mill tax would bring in $140 to $210 million for the Kenai Peninsula Borough each year, Micciche said.
“We're okay to negotiate that down significantly, but 10% of it doesn't cover our costs,” he said. “So we've got a lot of work to do.”
All five mayors said they had significant concerns about Dunleavy’s bill, including leaders from the Matanuska-Susitna Borough, the Denali Borough, the Fairbanks North Star Borough and the North Slope Borough.
North Slope Borough Mayor Josiah Aullaqsruaq Patkotak said he was concerned a tax break for the gasline could set a precedent for future oil and gas development. Oil and gas property taxes provide hundreds of millions of dollars for the borough each year, the vast majority of its revenue, and he said he worried that giving the gasline a tax break could lead other companies to seek the same.
“If I was a private-sector oil company, I definitely would be watching what's happening with this proposed legislation, and getting my proposed legislation ready to reduce the mill rate,” Patkotak said.
Denali Borough Mayor Chris Noel said he was not convinced the property tax breaks were necessary to ensure the project goes forward.
“I really believe we ought to take the time necessary to stress-test this assumption,” he said.
Mat-Su Borough Mayor Edna DeVries said the governor’s tax proposal “generally aligns” with local officials’ preferred approach, but she said the threshold for the tax to kick in was “far too high” — one billion cubic feet of throughput per day, roughly five times the current gas demand in Southcentral Alaska.
For Fairbanks, tax revenue isn’t the primary issue, said Fairbanks North Star Borough Mayor Grier Hopkins. Just two miles of the planned pipeline’s route are within the Fairbanks borough, meaning that even a full 20-mill property tax would bring in only about $400,000 each year, he said.
But Fairbanks’ location — at the end of the Alaska Railroad and the beginning of the Dalton Highway connecting the Interior to the North Slope — means the community will be a hub for construction, Hopkins said.
But with the pipeline about 30 miles from the local natural gas distribution network, he said the project as currently envisioned would not provide a long-term economic boost to Fairbanks and nearby Interior communities. A so-called spur line, which would connect the Fairbanks gas network to the pipeline, would cost at least $180 million, he said.
Forcing Fairbanks’ roughly 30,000 ratepayers to cover the cost of a spur line would not drive natural gas prices any lower than they are today in his community, about $25 or $26 per thousand cubic feet of gas, he said.
He asked that support for a spur line be included in the pipeline tariff, the fee producers pay to transport their gas through the pipeline.
“If we're going to get Alaska gas to Alaskans, we have to make sure it benefits everybody along that line in the way that they need,” Hopkins said.
Hopkins criticized what he said was a rushed process. He and the other mayors started meeting with the administration just this past January, he said. All five said they supported the project and were willing to negotiate — but they need time to find a workable solution, Hopkins said.
“We're not looking at getting rich off of this line,” he said. “We're looking at getting what's fair, maintaining our autonomy and our ability to negotiate or get a fair deal and make sure that the project benefits our community, not just financially for many of us, but economically.”
