House panel hears gas line tax bill with 15-cent volumetric fee

The House Finance Committee heard testimony Thursday on a bill that would replace traditional property taxes on the Alaska LNG pipeline with a volumetric tax of 15 cents per thousand cubic feet of gas transported.

House Bill 381 would exempt the pipeline from state and municipal property taxes and instead levy the alternative tax on gas flowing through the line. The state would collect the tax and distribute 81 percent to municipalities, retaining 19 percent for state revenue. Half of the municipal share would go to communities along the pipeline route based on distance, with the state keeping the Unorganized Borough portion. The other half would be distributed statewide on a per capita basis.

Dan Stickel, chief economist for the Department of Revenue, told the committee the alternative tax would generate about $10 million in 2029 when first gas flows. He noted that a slide showing $577 million by 2033 contained a typo. That figure represented the total for alternative volumetric tax as well as remaining municipal property tax, not the alternative tax alone. The department will provide corrected figures to the committee. The state would receive $2 million in 2029, increasing to $37 million by 2033 under the alternative tax.

The Department of Revenue issued an indeterminate fiscal note because it cannot predict whether the AK LNG project would proceed with or without a tax change.

The bill leaves significant decisions to municipalities. North Slope Borough and Kenai Peninsula Borough would retain authority to negotiate alternative taxes or equity stakes for gas treatment plants and LNG facilities located in their jurisdictions.

Representative Alyse Galvin questioned whether the bill sacrifices tax certainty for Phase 2 of the project by leaving municipal decisions unresolved. Stickel said the bill provides certainty for the pipeline and Phase 1 investment but leaves Phase 2 tax structure to future municipal negotiations.

The project must meet eligibility conditions before qualifying for the alternative tax. Owners must commit to depositing $40 million into a community impact fund, negotiating a project labor agreement, and constructing a Fairbanks spur line. The spur line must begin operation within two years of the main project and deliver gas at the lowest reasonable cost, with costs allocated system-wide rather than solely to Fairbanks consumers.

The House Resources Committee added a provision requiring a report to the Legislature before a final decision on Phase 2.

Representative Will Stapp asked about the difference between the 15-cent rate in the current bill and the 6-cent rate in the governor's original proposal. Stickel said the original bill applied a 6-cent tax to the entire project with a ramp-up period and 1 percent annual inflation adjustment. The current version applies 15 cents only to the pipeline with no ramp-up period. The bill provides for annual inflation adjustments based on a 5-year average of the Consumer Price Index, though Stickel noted some drafting ambiguity around the inflation mechanism that the department is interpreting as an annual adjustment using a 5-year smoothed average.