After months of work and two consecutive special sessions, Alaska lawmakers have set up a high-stakes vote on a bill that would offer tax breaks to the Alaska LNG project. A conference committee tasked with hammering out a compromise rolled out and passed its final draft of the bill Thursday morning.
Legislators are scheduled to take a final up-or-down vote on the bill as soon as Thursday afternoon.
The conference committee’s version of House Bill 381 would replace the state’s 2% annual property tax on most oil and gas parcels with a tax based on the amount of gas flowing through the 807-mile pipeline, gas treatment plant and liquefaction facility. The lead developer of the project said the change was necessary for it to secure financing for the up to $54.5 billion project.
Notably, the bill advanced for a final vote retains a controversial tax change that would subject oil and gas companies with more than $1 million in taxable income structured as pass-through entities, such as LLCs and S corporations, to the state’s up to 9.4% corporate income tax. The change would take effect in 2029.
That’s been a yearslong priority for much of the Senate’s bipartisan majority caucus and a major sticking point between members of the House, Senate and Gov. Mike Dunleavy.
Newly revised corporate tax expansion would exempt Alaska LNG
Advocates in the Senate’s bipartisan majority caucus say the tax, which the Department of Revenue has previously estimated could bring in up to $100 million per year, would help offset an expected loss in state revenue as oil and gas producers invest in gas production.
Glenfarne, the Alaska LNG project’s New York-based lead developer, has opposed it. The company has said the change would undercut the primary purpose of the tax cut bill by making it more difficult for the project to attract investors and lenders.
For that reason, the draft advanced for a final vote Thursday would exempt income from the Alaska LNG project from corporate income tax, said Rep. Calvin Schrage, an Anchorage independent who chaired the conference committee.
“There's a desire not to impact the project viability at this time and to make sure that they have a maximum chance of success at this juncture,” Schrage said shortly after the committee voted 4-2 along caucus lines to advance the bill to a final vote.
Glenfarne did not immediately respond to a request for comment.
The tax would likely apply to large Cook Inlet and North Slope oil and gas producer Hilcorp, a privately held company chaired by Texas billionaire Jeffery Hildebrand. A coalition of business groups, including the Alaska Oil and Gas Association, issued a statement opposing the tax Thursday.
Ahead of the first year of the tax, companies would submit what the bill describes as “informational” tax returns to the Department of Revenue. That would help a future Legislature tweak the tax ahead of it taking effect, said Sen. Bert Stedman, a Sitka Republican and one of the bipartisan Senate majority’s two representatives on the conference committee. The 9.4% rate may be too high, he said.
“I'm highly confident that when the Department of Revenue gets data and comes back to the Legislature in a year or two years out, that they're going to have specific recommendations,” he said. “It'll all be cleanup language, and I would not be a bit surprised if there's a rate reduction in it.”
Minority Republicans on the committee said they were skeptical lawmakers would cut the rate later.
An uncertain future in the House, Senate and at the governor’s desk
The bill closely aligns with the version that passed the Senate last month, though lawmakers stripped out or pared back some provisions Glenfarne said were impractical.
But Schrage said he was uncertain whether the final draft could gain the support of a majority of the House.
A bipartisan caucus of 14 Democrats, 5 independents and two Republicans holds a one-vote majority in the House. And key members of the House’s bipartisan majority caucus, including House Majority Leader Chuck Kopp, an Anchorage Republican, have been skeptical of the pass-through entities tax.
“I would be hopeful that we could get to the point where this was no longer looked as a vehicle to add on a corporate income tax,” Kopp said in a news conference alongside Dunleavy last month.
He declined to comment Thursday morning ahead of the final vote.
Dunleavy, in an opinion column published last month, said he would veto the gas pipeline tax break bill if it included the corporate income tax change.
“Any bill that reaches my desk with those targeted tax increases and any other language that would negatively impact the viability of this project will be vetoed,” Dunleavy wrote.
Dunleavy’s office did not immediately respond to a request for the governor’s thoughts on the new version of the bill, exempting the Alaska LNG project from the tax change.
Minority Republicans on the conference committee opposed setting the bill for a final vote. Rep. Justin Ruffridge, a Soldotna Republican representing the House minority, said he was frustrated lawmakers declined to hear from the Department of Revenue before setting the bill for a vote.
“Not hearing from the Department of Revenue about a large-scale change to our income tax structure seems a little irresponsible,” Ruffridge said.
A best and final offer
The bill represents the “best work product that I believe we could have come up with,” Schrage said.
“I'm hopeful that we'll have the votes necessary to move this forward,” he said.
Lawmakers are scheduled to vote on the bill Thursday afternoon.
The special session is set to end by July 19. And if the House, Senate or governor reject the bill, it’s unlikely lawmakers would be willing to return for another special session with primary elections just over a month away, Schrage said.
“Legislators are overwhelmed with the number of backlogged things that they need to be working on and taking care of,” he said. “I see the capacity for coming back for a third special session to further refine this legislation as nonexistent.”
