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Municipalities worry about property tax Senate Resources told communities want seat at the table in discussions on PILT, payment in lieu of taxes, not just consultation Kristen Nelson Petroleum News
Municipalities are expressing dissatisfaction with the property tax consultation role assigned to them under the heads of agreement which the state has negotiated for equity participation in an Alaska LNG project.
And they are unwilling to wait until later to see that their concerns are met.
The HOA that the state signed with the North Slope producers and TransCanada, which requires legislative approval, specifies that once enabling legislation is passed and work moves to pre-FEED, pre-front end engineering and design, the administration will consult with local governments on PILT, payment in lieu of property tax for the Alaska LNG project.
But the Fairbanks North Slope Borough, the Kenai Peninsula Borough, the North Slope Borough and the City of Valdez, wrote the governor Feb. 11 to express concerns with the potential impacts of the project on local governments.
The mayors said they “have become concerned about the lack of information provided to municipalities regarding the impacts of the ongoing negotiations, particularly local government concessions that may be considered during pending gas pipeline negotiations with the North Slope producers.”
Three of the four also testified on their concerns to Senate Resources Feb. 19. The committee is hearing the enabling legislation, Senate Bill 138.
The mayors told the governor they want “to participate in the discussions and to negotiate and agree to terms that directly impact municipal tax structure and revenues.”
Municipalities have disagreed with the state over property tax valuation of the trans-Alaska oil pipeline, most recently winning in the Alaska Supreme Court (see story page 1 of this issue).
The HOA provides: “Subject to consultation by the Administration with local governments,” PILT — payment in lieu of property tax — would be paid by project participants on each component of the project. “For the Alaska LNG Project, the PILTs would be on a unit rate per throughput basis (e.g. cents per thousand cubic feet, etc.) and could be level or escalating dollar payments for the Alaska LNG Project components.”
The HOA also provides for impact payments “to help offset increased service and other costs borne by the State and local governments during construction of the Alaska LNG Project.”
It’s the next step Deputy Revenue Commissioner Mike Pawlowski told Petroleum News in a Feb. 20 email that the administration has consistently testified that the HOA “is the beginning of the process of developing a large-scale LNG project in Alaska and that passage of SB 138 and the momentum for the project it would create (Pre-FEED) is necessary to begin conversations with local governments about the property tax issue.”
In a Feb. 17 letter to Kathie Wasserman, executive director of the Alaska Municipal League, Pawlowski said: “The base for any PILT or impact payment system is undefined and the Administration has always viewed the development of such a concept as only working if it is a consensus approach developed with local governments.” He also told Wasserman that any revisions to property tax for the Alaska LNG project “would need to be returned to the legislature for consideration in a future legislative session.”
Pawlowski told Petroleum News that the administration recognized during development of the HOA that “certain fiscal terms needed to be clarified to enable the project to advance” including establishment of the state’s gas share, royalty plus production tax, and commensurate investment.
“We recognized that property tax is an outstanding issue that could only be resolved through an active consultation with local governments. The HOA contemplated this process as part of the next steps for the project,” he said.
Not just the gas pipeline The municipalities appeared to be concerned about property taxes on both the LNG project and the existing oil pipeline infrastructure.
John Hozey, Valdez city manager, told Senate Resources that Valdez was encouraged by the momentum for the project, but concerned that momentum undermines the ability of local government to provide services. The life blood of communities is property tax, he said. Oil and gas taxation has been offered as an incentive to producers in the past, he said, and said Valdez implores legislators to resist any change of property taxes without the input of the communities it will affect.
Mike Navarre, mayor of the Kenai Peninsula Borough, told the committee that consulting with municipalities is not adequate. The municipalities will be living with the impacts long after the project is finished and while the Kenai Peninsula Borough is in favor the Alaska LNG project, it wants to negotiate on its own.
Navarre said he has talked to the governor about the issue and been told it’s too early for that discussion. Navarre told the committee it’s “never too early” for the property tax discussion.
Sen. Peter Micciche, R-Kenai, a former mayor of Soldotna, said he’d met with Navarre and didn’t believe the municipalities were “lurking like wolves,” but said it was important to have an eye out for their concerns.
Mayor Luke Hopkins of the Fairbanks North Star Borough told the committee Fairbanks supports a large gas line to an LNG plant for export. He said mayors were concerned that the terms for a PILT have already been negotiated and said amending language has been submitted to Sen. Bishop, a Republican committee member from Fairbanks. Hopkins said the mayors are asking to be at the table and in negotiations.
Sen. Anna Fairclough, R-Eagle River, asked Navarre if the Alaska Municipal League could come up with language. Fairclough told Hopkins the state was looking for certainty in gas line costs and said a way was needed to determine value in a way that is durable so costs can be incorporated into the structure of an agreement.
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