Mayors, including Mat-Su’s DeVries, weigh in on gas pipeline property tax cut

Mayors in boroughs affected by the governor’s proposed cut of property taxes on the big Alaska LNG project weighed in last Friday on the issue in the Senate Resources Committee meeting in Juneau. Matanuska-Susitna Borough Mayor Edna DeVries joined them and wasn’t shy about making pointed suggestions.

Gov. Mike Dunleavy argues that a $1 billion annual property tax under current state law weighs too heavily on the big project’s economics and has proposed an alternative payment based on the volume of gas moving through the project, if it is built. The governor’s proposal, in Senate Bill 280 and House Bill 381, would cut the tax burden by 90%. However, Dunleavy argues there will be no project unless the tax is modified.

Alaska LNG is being developed by Glenfarne, a New York-based infrastructure company working in a partnership with the state’s Alaska Gasline Development Corp.

Basically, all the mayors speaking last Friday supported the gas project including DeVries but all said the proposed cut goes too far and leaves municipalities without funds to pay for impacts on local roads, public safety and other problems during construction.

DeVries said that one positive in the governor’s plan is that the alternative, known as a Payment-in-Lieu-of-Tax, or PILT, avoids a problem in traditional property taxes that are based on assessed value. Disputes can arise over assessed values and appraisals that can lead to extended litigation, she said. That has happened with the trans-Alaska oil pipeline. Another advantage with the new plan is that all of the revenues would be paid to municipalities and not shared with the state, which is the situation under the current oil and gas property tax system.

The mayor made some suggestions: First, under the proposal in the legislation a threshold of one billion cubic feet of gas per day moving through the pipeline must be reached before revenues are paid. That is too high, Mayor DeVries said. She suggested a lower threshold of 250 million cubic feet per day would be more appropriate as a point to trigger payment. A second suggestion is that a separate PILT should be negotiated for construction impacts while the project is being built.

About a fourth of the planned 800-mile pipeline would be built through the Mat-Su Borough but most of the construction will be on the west side of the Susitna River. That means the “man camps” to support the project would not be in core areas of the borough. Still, there would be local roads used as well as heavy traffic on the Parks Highway, the mayor said..

There shouldn’t be the kind of intense impacts on local housing, schools and public services like Fairbanks and Valdez experienced in the 1970s during oil pipeline construction. Still, the project will likely draw new population to Mat-Su in the long run, a positive. “People working on the pipeline will see what nice place the Mat-Su is and want to eventually move here and bring their families,” the mayor said.

But another potential concern is an adverse effect on state school funding if the pipeline value is included by the state assessor in the required Full and True Value calculation of property within municipalities. Under current funding formulas this could reduce state money for school districts, she said.

Denali Borough mayor Chris Noel echoed many of the concerns raised by Mayor DeVries and, like her, suggested a special PILT during the construction phase to help pay for local impacts. The Denali Borough doesn’t have a property tax, he said, but it does have other taxes and fees. He suggested the legislation be clarified so that these are not limited or prohibited. Several miles of the pipeline cross lands owned by the Denali Borough and the borough will incur costs in land administration for this. Fees for that should be allowed, Mayor Noel said.

The Fairbanks North Star Borough has a far different set of problems, borough Mayor Grier Hopkins told the senators. Mayor Hopkins said his municipality would receive little property tax or even alternative revenues under the gas throughput formula because the pipeline will cross only two miles of land within the borough. The pipeline will be built west of the city.

Also, Fairbanks will also receive no gas new supply from the project, Mayor Hopkins said, unless a spur pipeline to Fairbanks is built off the large 42-inch main pipeline. But unless that is paid for by the Alaska LNG Project the cost of the spur will be footed by local ratepayers making the gas very expensive for local residents, the mayor sai. Although the pipeline will be built west of the Interior city Fairbanks will still be a hub for construction support which means there will be heavy use of local roads and requirements for services like emergency medical support.

North Slope Borough Mayor Josiah Patkotak told the Senate committee he is concerned about how the governor’s bill would affect the tax status of a needed large gas treatment plant at Prudhoe Bay and whether the bill might have some effect on the tax status of existing oil and gas property in the borough. However, Mayor Patkaotak suggested in that affected municipalities could become equity owners in the project to offset the reduction of property tax value. This would be similar to the way the Municipality of Anchorage took ownership of 60% of the Beluga gas field several years ago when Shell sold its share of the field. This turned out to be highly successful. (Chugach Electric Association now owns this.)

Kenai Borough Mayor Peter Micciche told the Senate committee he thinks the affected municipalities should negotiate separate deals with Glenfarne under their existing authority. Kenai has a long history of negotiating incentives and tax abatements with companies on large industrial projects, Micciche told the committee. Also, Kenai faces a situation different than the other municipalities in that a large liquefied natural gas plant would be built that will require several thousand workers for several years.

Although this will put a stress on housing and schools there are long-term positives if the right planning is done. When large industrial plants were built in the Kenai in the 1960s and 1960s the developers worked with local governments and private firms to develop housing subdivisions and streets to accommodate community growth, Mayor Micciche said.

That said, the governor’s bill is its current form leaves too many costs imposed at the local level, Mayor Micciche said. Like the other mayors, he believes the proposal is, “a good starting point, buy we have a long way to go,” to get an acceptable plan.

“My community is doing fine,” the mayor said, “but we are stretched. We can’t afford these added costs.” Proponents of the bill argue at even with a large reduction of tax, “something s better than nothing. But below zero is not ‘better than nothing,’” Mayor Micciche said.