Dunleavy says Alaska gas pipeline depends on property tax overhaul

Governor Mike Dunleavy called Monday for the Alaska Legislature to pass a payment-in-lieu-of-taxes bill within three weeks. He warned that the current property tax structure makes what he described as the largest project in state history unfinanceable.

The governor framed the proposed tax overhaul as crucial to advancing a $44 billion to $50 billion liquefied natural gas pipeline from the North Slope to the Kenai Peninsula. Without the change, he said, Alaska cannot compete with lower-cost states like Texas for the investment needed to build the 800-mile project. Local governments warn the proposal could sharply reduce their property tax base.

"If you were to say to me, Dunleavy, what's the most important thing that can happen in this session? It's this PILT by far, bar none," Dunleavy said. "This would be the largest project in Alaska history, probably the largest in the Arctic, in the Pacific."

Dunleavy introduced legislation in March to replace Alaska's 20-mill property tax on oil and gas infrastructure with a volumetric throughput tax. His original proposal set the rate at 6 cents per thousand cubic feet of gas after the project reaches full capacity.

A House Resources Committee substitute circulated in late April would set a combined alternative volumetric tax of 20 cents per 1,000 cubic feet for gas moving through the export-project components, roughly triple Dunleavy's proposed rate. The draft sets 5 cents for gas treatment or carbon capture, 5 cents for pipeline transportation and 10 cents for liquefaction. It also added requirements for a spur line to Fairbanks and community benefit agreements. The higher rate and conditions were proposed to address concerns from local governments, which stand to lose up to 90 percent of their property tax revenue under the governor's plan.

The governor said Monday that a rate "much above" 6 cents would make the project unfinanceable. "If you go above, much above that, you're probably not going to get a project that's financeable," he said. "Somebody comes in with a 20-cent throughput tax, it's not going to be financeable."

The conflict over tax rates reflects a central tension in the legislative debate. Local governments depend on property tax revenue from oil and gas infrastructure. The governor's proposal would sharply reduce those receipts. Legislators have debated alternatives including higher throughput taxes and impact payments of up to $800 million to offset infrastructure costs borne by local communities.

Dunleavy argued that Alaska's current property tax is among the highest in the nation and puts the state at a severe disadvantage. "If you were to compare the price and the cost of building an 800-mile pipeline in Alaska versus an 800-mile pipeline in Texas, the cost is nearly half as much in Texas," he said.