One day before the state Legislature voted on a multibillion-dollar tax break for the proposed trans-Alaska natural gas pipeline project, Anchorage Rep. Calvin Schrage gave the pipeline’s lead developer a sneak preview of the bill.
For weeks, Schrage had been in charge of negotiating a compromise version of the property tax break that could win approval from the state House, Senate and Gov. Mike Dunleavy.
He walked Glenfarne Alaska President Adam Prestidge through the compromise, explaining section by section how skeptics in the Senate had given ground on labor issues and project timing. Senators also were no longer insisting that the gas project owners be subject to a state corporate income tax on privately held oil and gas producers.
Given those changes, Schrage asked: Could Glenfarne support the bill?
According to Schrage, Prestidge said it could, and Glenfarne would publish a news release to that effect.
Glenfarne disputes Schrage’s account. The company said differences in perspectives appears to have contributed to a failed vote in the House on July 16 that killed the bill.
Glenfarne has repeatedly said that changes to the state’s petroleum property tax are needed in order for it to get financing for the project, which the developer has said could cost as much as $54.5 billion.
The tax break would require the state and local governments to forgo more than $10 billion in revenue over 30 years, and many legislators are skeptical of the need to short the public treasuries for the sake of the project’s finances. Getting their votes required a compromise.
As part of a deal to win support for the property tax break in the Senate, the bill included an expansion of the state’s corporate income tax code to apply to privately held oil and gas producers that don’t currently pay the tax. The Senate majority has been advocating for that change in tax law — to tax all oil and gas producers the same, regardless of their corporate structure — but has been unable to win passage in the House.
On July 16, after Schrage told fellow lawmakers that Glenfarne supported the new version of the legislation which did not extend corporate taxes to Glenfarne, the six-member bipartisan, bicameral committee voted 4-2 to advance the compromise bill to the full House and Senate for a vote. Glenfarne is not an oil or gas producer and would not have been covered by the change in Alaska’s corporate income tax on profits.
Privately held Hilcorp, an oil and gas producer owned by billionaire businessman Jeffery Hildebrand, would be most affected by the revised tax. Hilcorp is the operator of the Prudhoe Bay and Point Thompson oil and gas units on the North Slope and would supply gas for the Glenfarne project.
Hilcorp has opposed any change in the state’s corporate income tax code to apply to privately held companies.
“What I heard from Glenfarne is that Hilcorp told them that if they (Glenfarne) came out in support of the bill, that they (Hilcorp) would make all their contractual negotiations impossible for them, and essentially threatened to use their future negotiations,” Schrage said.
Before the state Senate voted on July 16, lawmakers learned that Glenfarne and the Alaska Gasline Development Corp. — a state-owned firm developing the pipeline with Glenfarne — might have issues with the tax provision, even though it would not directly apply to the project.
AGDC owns 25% of the gas line project, while Glenfarne owns 75%, which the state gave it for free last year in an attempt to find a private company to take the lead on the venture.
The bill ultimately passed the Senate by a single vote.
But before the House could vote, Gov. Mike Dunleavy issued a statement saying he opposed the bill and would veto it if it passed the House.
No veto was needed: Only 19 members of the House voted for the bill, two short of what was needed to advance it in the 40-member chamber. The entire House Republican caucus voted against the bill which included the corporate tax provision that they have long opposed.
The governor has ordered lawmakers back to a third special session starting July 27 in a push for a bill that he likes.
Several House Republicans who voted against the bill said they did so because it would affect companies that are drilling for oil and gas in Cook Inlet, including Hilcorp. Anchorage and the rest of the state’s population center depends on Cook Inlet gas for heat and power.
“It’s frustrating that Hilcorp has so much influence over the state of Alaska,” said Bethel Sen. Lyman Hoffman on July 17. “Glenfarne or the governor wouldn’t stand up to them for the better interests of the state of Alaska.”
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