Mat-Su has a big stake in governor’s new gas pipeline legislation. Construction impact a concern

Gov. Mike Dunleavy has introduced legislation in Juneau creating an alternate property tax for the proposed Alaska LNG Project. The Matanuska-Susitna Borough has a big stake in this.

That’s because almost 200 miles of an 800-mile 42-inch natural gas pipeline for the project would be built through the borough. If the pipeline were to cost $10 billion to be built, as an example, that’s $2.5 billion added to the Mat-Su borough property tax base.

However, the governor, and Glenfarne, the state’ private partner on Alaska LNG, say the project would be uneconomic if conventional property taxes were applied as they are, both from the state and municipalities along the pipeline route. It’s not clear that the project is viable and will be built even with the tax change, but changing the tax would improve the project economics and help bring in investors.

The governor’s new bill would repeal the state’s 20-mill property tax on oil and gas facilities and as well as the authority for local governments to apply property taxes. The legislation instead proposes an alternative tax based on the amount of gas moving through the pipeline and being made into liquefied natural gas, or LNG, at a large liquefied natural gas plant planned on the Kenai Peninsula.

Mat-Su Borough manager Mike Brown said he and others in the borough are studying the governor’s proposal and do not yet have a position. Brown was involved in an informal working group with officials from other boroughs to review the concepts now in the governor’s new bill. He discussed those with the borough assembly in a meeting several weeks ago.

Current state law does not allow state on municipal taxes on Alaska LNG while it is in construction. The governor’s bill would extend that the moratorium on both the state and local government taxes until the pipeline is built and moving one billion cubic feet of gas daily, which is about one third of the volume to be moved when the project is in full operation.

Without a change in the tax structure the combined state and local tax of 20 mills, or 2% of the project value, would impose a $1 billion annual tax just as Alaska LNG begins operations, which is enough to skew the economics and make the project unviable in the eyes in investors, the governor and Glenfarne said.

The alternative tax would be 0.6 cents per thousand cubic feet of gas being moved. That works out to far less than the $1 billion from the current property tax. However, if the current tax makes Alaska LNG uneconomic there would be no revenue, the governor said. The jobs that would be created and the new gas supply from the North Slope would also not happen.

In a statement accompanying introduction of the bill March 20, Dunleavy said: “The Alaska LNG Project is one of the most significant economic opportunities in our state’s history. This legislation removes a structural barrier that was standing between Alaska and decades of energy security, jobs and revenue.” A further statement from the governor’s office said, “The current tax structure creates a burdensome fixed cost for the project in the first years when capital expenditures are greatest and revenue is minimal.”

“The governor’s proposed legislation removes the front-end tax burden and aligns the taxes with production. That de-risks the project for investors and creates a more predictable revenue steam,” the statement said.

Municipal officials in local governments along the pipeline route, which include Mat-Su as well as the Kenai Borough, Fairbanks North Star and North Slope boroughs, say they support Alaska LNG but worry about the effects of losing their ability to levy taxes.

A key problem borough mayors point to is that Dunleavy’s plan leaves local governments without the ability to raise revenue to pay for economic, public safety other impacts of construction of the big project. During construction of the Trans Alaska Pipeline System in the 1970s there were severe public safety, housing and other problems in Fairbanks and Valdez and communities along the Richardson Highway created by the influx of workers.

In fact, the current state oil and gas property tax was enacted in 1973, at the urging of then-Gov. Bill Egan, to raise revenue to help municipalities deal with the problems.

Municipal officials say they are willing to work with the governor and Legislature on solutions, such as a special impact fund. Municipalities along the pipeline route will be affected in different waysa. In Mat-Su the pipeline route is mainly west of the Susitna River, away from communities, but parts of the borough will still be staging areas for construction and the Parks Highway and the borough’s Port MacKenzie will see heavy use.

Fairbanks has a similar situation. The pipeline route is west of the city in the Minto Flats but Fairbanks will still be a major staging point, as it was in the 1970s during the oil pipeline construction. The situation in the Kenai Borough will be somewhat similar to that in Valdez during TAPS construction. Building the large LNG plant planned there will require thousands of workers, housing and logistics support.

However, construction of the gas pipeline will be done differently than with the oil pipeline, and the pressures on local communities will be different, an probably less. For one thing, the gas pipeline will be buried rather than built partly above-ground, as was TAPS. Because of that most of the field work will be done in winter, and will be highly seasonal. Also, pipeline construction technology has been improved since the 1970s.

It is now highly mechanized and will require fewer workers. Still, the transportation requirements in terms of moving pipe and materials will be similar, and there will be major impacts on infrastructure like highways and ports.