The Alaska House of Representatives has voted to advance a multibillion-dollar property tax break for the proposed trans-Alaska natural gas pipeline project.
The House’s 34-5 action on Friday, June 12, sends the legislation to the state Senate, which is expected to take up the issue this week. Legislators are in a 30-day special session devoted to the issue; the session ends Friday, June 19.
House Bill 381, containing the tax break, doesn’t guarantee pipeline construction, but project skeptics and advocates alike say that without the change, the pipeline is uneconomic.
“I’m very proud of us getting this bill to where we are today and giving this project a fighting chance,” said Anchorage independent Rep. Calvin Schrage.
If enacted, the bill would replace the state’s 2% oil and gas property tax with a much lower levy on gas shipped through the pipeline. The proceeds would be split between boroughs along the pipeline route and the state.
If the entire project is built, those governments would collectively forego about $800 million per year under the tax relief package, said Anchorage Democratic Rep. Andy Josephson.
The state would still collect royalties, corporate income taxes, production taxes and other fees, said Anchorage Republican Rep. Chuck Kopp. Those are expected to net the state between $600 million and $700 million in new revenue per year.
The state’s population center in Southcentral Alaska relies on natural gas from fields beneath Cook Inlet for heat and electricity, but supplies are running low. The legislation contains a rate cap to mandate that the pipeline developer provide gas to Southcentral residents at a price that’s lower than the predicted price of imported gas — though significantly higher than what utilities are paying now for gas.
Other parts of the bill mandate an impact fund of $80 million to compensate municipal governments for the effects of traffic and workers and their families during construction, estimated at six years.
Gov. Mike Dunleavy and Glenfarne, the multinational firm developing the pipeline, issued written statements after the vote, praising lawmakers’ action.
As currently planned, the Alaska LNG project would be built in two phases. The first phase would include a pipeline from the North Slope to Cook Inlet to deliver gas to Southcentral. Glenfarne expects to begin operating the first phase by 2029 but has not yet contracted for pipeline construction, work camps or logistics to move 100,000 sections of 40-foot steel pipe.
The second phase would involve building a multibillion-dollar gas treatment plant on the North Slope and an even more expensive plant in Nikiski on the Kenai Peninsula to liquefy the gas for shipment aboard tankers to customers overseas.
Glenfarne expects the second phase of construction to be done in 2033 and that both phases will cost between $44.5 billion and $54.5 billion.
Exports would subsidize the cost of gas for in-state use.
That’s still hypothetical. Estimates from the Alaska Department of Revenue suggest the pipeline project’s economics are marginal. Even if the tax break is adopted, the cost of exported gas may not be competitive on global markets with gas from other sources around the world.
Under the terms of HB 381, pipeline developers would make no payment in lieu of property tax for the first five years of the project, or until gas volume reaches a certain, export-level threshold.
After that point, the new tax would kick in, based on the volume of gas moving through the line, not the assessed value of the project.
Utqiagvik Democratic Rep. Robin Frier opposed the final version of HB 381. She represents the North Slope Borough, which relies heavily on the oil and gas property taxes for its public services. The borough would forego hundreds of millions of dollars in prospective revenue under a switch to a volume-based tax.
Anchorage Democratic Rep. Donna Mears was excused from the House vote because of travel problems that kept her from reaching Juneau. By text message, she said that had she been present, she would have voted against the bill.
“This legislation will push costs down onto communities and lock us into tax breaks we won’t be able to re-evaluate for decades,” she said.
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