The Alaska House is considering a tax break for the Alaska LNG project aimed at making the long-dreamed natural gas pipeline from the North Slope to Southcentral Alaska a reality. Debate was ongoing Monday afternoon.
Lawmakers are weighing whether to insert the tax relief legislation as an amendment to what had been, until Monday, a three-sentence bill clarifying the regulation of liquefied natural gas import facilities. A two-sentence version of the bill passed the Senate in March.
After a weekend of negotiations with the governor’s office and representatives of the pipeline developer, Glenfarne, House Majority Leader Chuck Kopp, an Anchorage Republican, offered the amendment as a compromise. Kopp said it incorporated elements of a bill the governor proposed in March and drafts of the bill put forward by the House’s and Senate’s resources committees.
“Everybody gave something,” he told lawmakers Monday morning. “What we ended up with is a tax structure that the project can take to investors and be established for success, paired with the protections our communities along the route need, as this project is built and goes into production.”
The question that has vexed lawmakers in the House and Senate for much of this year’s legislative session is how much tax relief is necessary, and what other conditions the state can attach to that tax relief without sinking the $46.2 billion project.
The proposal up for debate would exempt the gas pipeline project from a statewide 20-mill, or 2%, property tax on oil and gas parcels and replace it with a tax on pipeline throughput, what the bill dubs an “alternative volumetric tax,” which would significantly reduce state revenue from the project.
The project developer, Glenfarne, consultants advising the Legislature and Gov. Mike Dunleavy’s administration have all said tax relief is necessary to allow the project to raise money from lenders and investors. Tax relief for the Alaska LNG project is Dunleavy’s No. 1 legislative priority, he said earlier this month, but some lawmakers are skeptical
“It could provide long-term energy security, create thousands of jobs, and generate billions in economic activity. These opportunities are real,” said Rep. Ashley Carrick, a Fairbanks Democrat. “However, so too is the risk of repeating an all too familiar mistake: surrendering enormous public value in the desperate hope that industry investment will save the state.”
The per-unit tax on gas included in Kopp’s proposal is significantly higher than what was proposed in the governor’s bill. Dunleavy proposed a flat six-cent tax on each 1,000 cubic feet of gas transported from the North Slope.
Kopp’s proposal offers a blended tax rate split among the three components of the project — the 807-mile pipeline, an Arctic gas purification plant and an LNG export facility on the Kenai Peninsula — equivalent to 10 cents per unit of gas, according to the Department of Revenue. The tax would take effect once the pipeline reaches one fifth of its designed capacity, 500 million cubic feet per day, and rise with inflation, up to 2% per year, thanks to a tweak on the House floor.
Unlike the governor’s proposal, revenue from the tax would be split between the state and local communities that host elements of the project. Local communities would receive an estimated $1.25 billion from the tax by 2042, according to projections from the Department of Revenue.
The largest share, 44%, would go to the host community of the LNG export facility, the Kenai Peninsula Borough, and another 32% would flow to the North Slope Borough, which would be home to the gas treatment facility.
The state would receive $7.5 billion in total revenue as a result of the bill by 2042, most of it from natural gas royalties and production taxes, according to the Department of Revenue.
Kopp’s proposal also puts several conditions on the tax relief, all of which Glenfarne told the House Finance Committee it was open to including.
For one, the tax relief would not take effect unless the commissioner of the state Revenue Department determines that the developer has “committed” to build a spur line connecting Fairbanks to the main pipeline.
The pipeline developer would also be required to deposit $40 million in a community impact fund, an effort to offset the costs of municipalities that will host elements of the project or serve as hubs for construction. The money would be distributed by the state Department of Commerce, Community and Economic Development “for activities, services or facilities that would offset actual or expected effects of construction of a gas pipeline.”
Kopp’s proposal would also require so-called project labor agreements — collective bargaining agreements with labor groups that would build the various components of the project. That’s necessary, according to the language of the proposal, “to ensure expedited construction with labor stability for the project by qualified residents of the state.”
“If you have pipefitters and teamsters and operating engineers with Arctic experience, that's a no-brainer,” said Rep. Zack Fields, an Anchorage Democrat.
House members have rejected a number of changes to the proposal, including several attempts to cap the price of gas from the project proposed by Democrats and independents in an effort to ensure Alaskans truly receive affordable energy from the project.
“These caps protect Alaskans from what are potentially the high costs of this project,” said Rep. Ky Holland, an Anchorage independent.
Former Sen. Mark Begich, who is working with the governor’s office on contract to advocate for the tax bill, told a Senate committee earlier this session that price caps were unworkable. Beyond that, price caps would circumvent the existing utility rate-setting function of the Regulatory Commission of Alaska, Kopp said.
“This would unfairly impact project economics in a way that is completely unknowable,” Kopp said.
Lawmakers are racing to pass a final version of the bill by midnight Monday in hopes that Dunleavy will allow a bill restoring public pensions for state and local government employees to pass into law. Monday is Dunleavy’s deadline to sign or veto the bill.
The process, functionally bypassing the House and Senate’s resources and finance committees, is giving some legislators pause.
“We have a very unconventional process in front of us here,” said House Speaker Bryce Edgmon, a Dillingham independent.
If the House ultimately approves the tax relief, it would go to the Senate for a concurrence vote. But with the bill in flux as House lawmakers continue to seek changes, it’s unclear whether a majority of the Senate will be willing to approve the bill.
