State sets $3 billion value for pipeline, down 4 percent

The Associated Press

How much is the trans-Alaska oil pipeline worth? State assessors have put the value at $3.076 billion, a drop of 4 percent — or $130 million — from last year.

“That’s better than where the pipeline guys wanted to go,” Fairbanks North Star Borough Mayor Hank Hove said March 3.

Pipeline property taxes are capped at 20 mills. In areas where the line runs through municipal boundaries, local governments reap a share of the income based on their own mill rate. The state collects everywhere else — on about $1.4 billion of the line according to the latest assessment.

That translates into about $28 million in property tax income for the state.

“The state has a very large equity interest in the pipeline. It’s not just the municipalities,” said Dick Brewer, assistant director of the Oil and Gas Audit Division in the state Department of Revenue.

Hove, Mayor Ben Nageak of the North Slope Borough and Mayor Dave Cobb of Valdez have been meeting over the last year with representatives of the companies that own Alyeska Pipeline Service Co., which operates the line.

The mayors want to slow what they say is an accelerated rate of pipeline depreciation.

The talks did result in a verbal agreement to arrest the decline for the following year at 6 percent, Hove said. State and company officials wouldn’t comment on that agreement.

“It’s still heading down,” Hove said. “But at least it gives us some certainty.... It does have real implications for the budget.”

For the Interior borough, the pipeline used to represent 40 percent of the tax base. Now, it’s 8 percent.

The value of the pipeline that runs through the Fairbanks borough is pegged at $256.3 million. That translates into about $4 million in taxes for the borough.

The value of other oil and gas property in Fairbanks has increased overall, thanks to Alyeska’s new Fairbanks headquarters and new business activity by ARCO Alaska Inc. The value of property related to the industry — including the pipeline — rose to $303 million for the upcoming tax year from $286.5 million, Reagin said.

The method for determining pipeline value was set in a 1985 out-of-court settlement involving pipeline tariffs and other issues, with state assessors making the official call.

Municipalities were informed of the settlement after the fact and have been complaining about it ever since.

For years, negotiations over pipeline values were conducted mostly between the state and the owner companies. Only in recent years have the municipalities become involved.

Several approaches are used in setting the value, including looking at income, market conditions and replacement costs, said Brewer of the Alaska Department of Revenue.