A group of state lawmakers tasked with drafting a final version of an Alaska LNG tax relief bill kicked off its work Friday and Saturday, a week after Gov. Mike Dunleavy rejected the version passed by the Senate and called lawmakers back into special session.
The six-member conference committee working out the differences between the House- and Senate-passed drafts of House Bill 381 spent the time in something of a public negotiation with developer Glenfarne and the Alaska Gasline Development Corp.
Glenfarne Alaska LNG LLC President Adam Prestidge and AGDC Commercial Director Matt Kissinger suggested numerous changes to the bill, saying some sections be deleted or reworked.
Lawmakers set an informal deadline of July 1 to come up with a final draft for the House and Senate to vote on. But meeting that deadline will be “challenging,” said conference committee chair Rep. Calvin Schrage, an Anchorage independent and one of two members representing the House’s bipartisan majority caucus.
“We've heard quite a number of concerns raised, both with some technical provisions of the bill that I think (are) mutually agreed upon, as well as concerns over some of the more controversial provisions, which some members of both bodies would really like to see in the bill,” he said after Saturday’s hearing.
Rep. Justin Ruffridge, a Soldotna Republican representing the House’s all-Republican minority on the conference committee, expressed frustration with the slow pace.
“We’re litigating all of the things we’ve already done,” he said.
Sen. Bert Stedman, a Sitka Republican representing the Senate’s bipartisan majority caucus, defended the committee’s approach.
“We're dealing with billions of dollars, so we need to be a little careful what we do, and be thorough,” he said. “We're doing the conference committee in public here, so they can actually see what's going on, which I think is good.”
Tax on pass-through entities, including Glenfarne and Hilcorp, prompts opposition and veto threat
Much of Saturday was devoted to a long-sought tax change that would subject some privately held companies to the state’s corporate income tax. Lawmakers added the provision on the Senate floor shortly before the bill passed the chamber.
What’s known as a “pass-through entities tax” — sometimes referred to as the “S-corp provision” — has been a priority for some members of the Senate for years. It would apply to privately held businesses, including S corporations and LLCs in the oil and gas business like Glenfarne and large oil and gas producer Hilcorp. Many lawmakers aligned with the bipartisan coalitions controlling the House and Senate say they see the existing tax structure as creating a loophole that allows large companies to skirt income taxes.
“That's been a concern of some of my colleagues for years,” Stedman said “How do we rebalance that?”
Anchorage Democratic Sen. Bill Wielechowski, one of the tax change’s primary advocates, said by text message he believed including the provision in the bill “will be necessary in order to get 11 votes in the Senate.”
That sets up a clash with Gov. Mike Dunleavy, who said in an op-ed published on the website of conservative political writer Suzanne Downing on Sunday he would veto any bill that included it.
“Adding a targeted income tax on oil and gas producers and on Glenfarne and its investors is not a negotiating tactic. It is a poison pill, and it must be treated as one,” he wrote. “That provision is a line in the sand. 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.”
The Department of Revenue said it could not offer an official estimate of the revenue the tax would raise because it did not have definitive information on what various entities would pay. But agency officials told lawmakers the tax would raise up to $100 million per year, with an additional $90 to $100 million per year once the Alaska LNG project ramps up to full volume.
Tax attorney Steven Mahoney, presenting alongside Glenfarne’s Prestidge, told lawmakers the version of the tax included in the Senate-passed bill was “a little bit rushed, it’s targeted, and the way it’s drafted, it can be volatile.”
“I find that there doesn’t appear to be enough meaningful analysis of what this amendment is proposing,” Mahoney said.
The tax would be higher than other states with a mandatory tax on pass-through businesses, he said, and it could impose state taxes on federally exempt entities, like nonprofits. Mahoney offered the conference committee suggestions for improving the language to eliminate some of the uncertainty he spotlighted.
But Glenfarne opposes the tax, even if lawmakers eliminate some of the technical questions about how it would apply, Prestidge said.
“Alaska is on the verge of one of the largest investment-attraction, capital-formation opportunities that any state has ever had,” Prestidge told the committee. “Undertaking that opportunity and that capital-formation event, and also layering in a tax regime that is uniquely higher than other states, is incongruous and would really be defeating some of the incredible opportunity for growth the state is in front of it.”
But Stedman said the state can’t constitutionally commit to never imposing it. Article IX, Section 1 of the Alaska Constitution provides that “the power of taxation shall never be surrendered,” meaning future legislatures could impose the tax at any time.
Stedman suggested it might be better for all involved to make the tax change sooner rather than later.
“I'm not so sure it would be fair to the investors, with the momentum being built in the state, to put billions of dollars on the table in equity, and have tens of billions in debt, and have us change the tax structure midstream,” he said.
The two minority-caucus Republicans on the conference committee each also said they opposed including a tax on pass-through entities in the final bill.
Glenfarne says labor provisions go beyond ‘binding’ agreement with unions
Another provision that attracted attention on Saturday was a floor amendment that imposed a series of labor requirements on the project, including minimum wages, apprenticeship requirements and more.
Prestidge said those go well beyond an agreement the developers signed with Alaska labor groups earlier this month. Sen. Jesse Kiehl, a Juneau Democrat, put forward the amendment, saying he understood an agreement between the developer and labor groups signed on June 11 to be nonbinding.
But Prestidge said repeatedly on Saturday that the memorandum of understanding, or MOU, it signed was in fact a legally binding commitment.
“We have an agreement that will prioritize Alaska labor first,” he said. “That's been something Glenfarne has been committed to since day one of our agreement with AGDC. We've now memorialized it in the binding MOU itself.”
He said the amendment approved by the Senate would go too far, including by imposing Alaska wage requirements on fabrication yards in, say, South Korea.
Prestidge suggested changing the language to require contracts with labor unions be “substantially consistent” with the June 11 agreement.
The three labor leaders who signed the agreement did not respond to emailed inquiries sent Saturday.
Leaked document and ‘clawback’ provision
Glenfarne and AGDC also raised concerns about a leaked document that AGDC’s Kissinger described as “stolen.”
In a story published Thursday, the Alaska Beacon detailed the confidential document, a draft analysis of AGDC’s agreement with Glenfarne produced for the agency’s board members.
The Beacon reported that the document showed the state may be required to pay the developer if it decides to force Glenfarne out of the Alaska LNG project. The document, which had been circulating among some members of the Senate, raised concerns and inspired senators to amend the bill, the Beacon reported.
At Friday’s hearing, Kissinger rejected the idea that the so-called “clawback” provision had been hidden from lawmakers and the public, saying executives with AGDC and Glenfarne had described its effect during multiple public hearings dating back to more than a year ago.
“This is an option that AGDC wanted. It is a state option that we requested and negotiated for our benefit,” Kissinger said.
Stedman encouraged AGDC to release a redacted copy.
On Saturday, Prestidge said the developer opposed a Senate amendment that would prohibit the developer from seeking financial compensation “based on the failure or abandonment of the project.”
Prestidge said the provision was a dealbreaker that “would severely hinder the developer’s ability and willingness to continue to operate in the state of Alaska.”
“We'd view that as extremely punitive to the project,” he said.
Glenfarne and AGDC also raised issues with a number of transparency provisions in the bill, saying disclosure requirements regarding foreign investors, cost figures, and the status of the project could hurt its ability to attract investors and lenders.
Lawmakers said Saturday they would return for another meeting on Monday to cover a short presentation on school funding lawmakers did not have time for on Saturday, but Schrage, the chair, said in a text message Monday that the committee would not meet until later in the week.
“There’s just more value in working through some of the issues already identified than having a committee meeting today to go over three slides,” he said.
