North Slope, Kenai mayors negotiate gas line property tax as House Finance delays bill deadline

The Alaska House Finance Committee postponed its amendment deadline Friday as North Slope Borough and Kenai Peninsula Borough mayors negotiated property tax structures with gas line developers.

North Slope Borough Mayor Josiah Patkotak told the committee he cannot support the project without the ability to negotiate gas treatment plant taxes under the existing AS 29.45 property tax framework. He opposes a novel volumetric tax.

"I can't go home and say, you know, they ask, Mr. Mayor, what's the deal on AK LNG? I say, well, we lost all of our property taxes and we have no gas going to any of our communities, so there's that," Patkotak said.

He proposed keeping the gas treatment plant under the existing tax framework. That would allow the borough to negotiate directly with producers.

"What I'm proposing is, versus fixing all the different variables at the tax structure level without the information from the inputs on how that tax structure looks, what I'm saying is I think it'd be more effective to allow that negotiation to happen between the borough and the producer," Patkotak said.

The North Slope Borough operates under a tax cap formula that forces the borough to shift costs to long-term debt. The borough carries $500 million in debt and $130 million in unfunded public employee retirement liability. Six of the borough's eight communities are diesel-reliant. Patkotak said possible spur lines to Kaktovik and Anaktuvuk Pass are part of the borough's concern about receiving direct gas benefits from the project.

Kenai Peninsula Borough Mayor Peter Micciche said his borough is closer to compromise. The borough is willing to accept significantly less than full property tax to enable the project while covering community impacts.

"We're willing to negotiate to a point where we cover our costs and it will be significantly shorter than the $8.5 million structure," Micciche said.

He said the borough is not seeking excess revenue. The borough wants to avoid forcing retirees and other taxpayers to subsidize a global project.

"We are not a community that rubs our hands together on mass quantities of cash that would be available because of this project. We are simply trying to make sure that our costs are covered," Micciche said.

Micciche said negotiations with the Alaska Gasline Development Corporation, Glenfarn, and the administration have improved recently. Under the current terms, the borough is getting closer to being kept whole. That depends on what is known and what is not known about the impacts of the project.

The Kenai Peninsula Borough has hosted oil and gas facilities since 1957. The borough invented commercial liquefied natural gas operations. Micciche said large facilities use substantial community services. Property taxes help share the cost of those services.

Representative Jeremy Bynum (R-Anchorage) said the property tax issue is the impediment that must be resolved to make this an investable project. The goal is to bring low-cost gas and maximum benefit to Alaskans.

"This is how do we get gas to Alaskans, and if we're going to export that gas to make it even cheaper, how do we maximize that benefit?" Bynum said.

SB2001 addresses taxation of natural gas project property. It includes a volumetric tax on gas throughput as an alternative to traditional property tax based on assessed facility value. The bill has been through multiple versions since the start of session. Each version attempts a different balance between making the project attractive enough to proceed and keeping enough revenue for the state and municipalities.

ExxonMobil, Hilcorp, and ConocoPhillips confirmed Phase 1 gas sale precedent agreements with Glenfarn. Pantheon Resources said it signed a gas sale precedent agreement with 8 Star almost two years ago. The gas it has already discovered is enough to fulfill the needs of Phase 1, Pantheon said. All four producers cited confidentiality on pricing details.

Changes to municipal valuation or taxation of gas project property can affect required local school contributions under Alaska law. Assessed property value is a factor in determining the required local contribution for public school funding.

The committee plans to set the amendment deadline Monday or Tuesday. It expects to take up amendments June 8, 9 or 10 in Juneau as negotiations continue between boroughs and Alaska LNG developers over how to tax the gas treatment plant and liquefaction facilities.

The committee plans to take public testimony Saturday from noon to 3 p.m. Written testimony is accepted at [email protected].