Alaska LNG alternative tax would collect $124M annually at full build

The alternative volumetric tax structure proposed in Senate Bill 2001 would generate approximately $124 million annually when the full Alaska LNG project reaches operational capacity, the Legislative Finance Division told the Alaska Senate Finance Committee Wednesday. Supporters say the proposal replaces Alaska's existing roughly 20-mill property tax on large oil and gas facilities with a lower volumetric structure to make the project financeable. Host communities are negotiating to ensure the revenue still covers local costs. Existing statutes already exempt AK LNG property from property tax during construction.

Kenai Peninsula Borough would receive $55 million of that total, North Slope Borough would receive $40 million, and the state would collect $15 million on behalf of the unorganized borough, Alexi Painter, director of the Legislative Finance Division, said. Mat-Su Borough would receive $8 to $10 million and Denali Borough would receive $4 to $5 million. Revenue distribution is weighted by the capital expenditures located in each jurisdiction.

The bill provides a temporary tax abatement with no taxes at all until the earlier of 500 thousand cubic feet of daily average throughput for a 30-day period or five years after the commencement of commercial operations. The tax rate then grows with CPI each year, capped between 1 percent and 2 percent annual growth. Payments would be made monthly rather than annually like existing property tax.

Kenai Peninsula Borough Mayor Peter Micciche told the committee the fight is over whether the reduced tax still provides enough revenue so that local taxpayers are not subsidizing a giant global project. At the high-end cost estimate of $28.4 billion for the LNG facility and marine terminal in Nikiski, the borough would collect $212 to $215 million annually if the project paid the same 9-mill rate as neighboring homes and businesses, Micciche said. The House version of the bill, which sets a 12-cent rate for the LNG plant component, would deliver payment in the low to mid-30 percent range of all other Nikiski taxpayers, approximately a 70 percent reduction, he said.

"That's okay," Micciche said. "90 percent was too much. 70 is in the ballpark."

"As partners in the industry willing to support gas and much-needed commerce for Alaskans, we can make that work," Micciche said. "I can look my constituents in the eye and explain with a high level of confidence that it will cover our costs in spite of the inevitable surprises we will find going forward." He added that the original governor's bill left the Kenai woefully short and that the borough has calculated approximately $30 million in annual impacts from the project, including costs for solid waste, roads, fire, EMS, hospitals, education, and regulatory tasks required by federal permitting. The hearing follows months of negotiation after the original bill proposed a 90 percent cut. A House rewrite raised rates and restored borough negotiating power.