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Looking for answers

KPB, other local governments ask to be involved in pipeline tax talks

Posted: February 13, 2014 - 9:41pm

The Kenai Peninsula Borough has joined forces with other government agencies in the state examine potential impacts of the Alaska Pipeline Project.

At its Tuesday meeting, the assembly adopted a laydown ordinance to appropriate $50,000 toward jointly hiring one or more consultants to analyze how the project will affect tax revenues.

Fairbanks North Star Borough, North Slope Borough and the City of Valdez have all signed on to the effort and submitted a letter to Gov. Sean Parnell requesting to participate in discussions concerning the tax structure. Each municipality also put up $50,000 to hire at least one consultant until the end of the 2016 legislative session.

“Everybody wants the project to move forward, but we really have a responsibility to the local government officials to figure out what it means,” Navarre said.

The State of Alaska, ExxonMobil, ConocoPhillips, BP and TransCanada entered, in January, a Head of Agreement.

Borough Mayor Mike Navarre said the details of the agreement are important and municipalities don’t know what those are yet. The consultant will help to determine how some of the possible legislative changes will effect local governments.

The agreement proposes a tax structure to allow producers, to make payment in lieu of taxes instead of paying ad valorem taxes on oil and gas property. Navarre said it’s uncertain whether a change in tax structure would affect existing producers.

Lawmakers are currently considering Senate Bill 138/House Bill 277, which stems from the agreement. If it is enacted, according to the ordinance, the commissioner of the Department of Natural Resources will be authorized to negotiate fiscal terms, including a PILT.

“And that may be fine,” Navarre said. “In fact it probably makes good sense for a project of this size to have something like that as part of it, but we’d like to know what that’s going to be and be able to have our input into that. Otherwise it’s just letting them decide what we’re going to get and it may negatively impact us in the long term.”

If a PILT is enacted, the borough will generate less money that it does with its current property tax structure, Navarre said. The borough’s revenue would depend on how the PILT is structured.

If the tax is paid to the state and then a portion from the state is paid to local governments, Navarre said, will there be a contractual guarantee? Or will the state be allowed to cut down the PILT counted on by local governments? If the latter is true, he said there could be severe impacts to governments dealing with the costs related to hosting a project of that magnitude.

The borough collects nearly $4.5 million from state assessed oil and gas property for the general government as well as about another $2 million from locally assessed industry properties. Service areas receive taxes based on their mill rates.

The State of Alaska taxes oil and gas companies at 20 mills minus the local mill rate. The borough’s mill rate is 4.5, and for the Nikiski area, mill rates for emergency and maintenance services are applied on top of that. A mill represents $1 of tax for each $1,000 of taxable value.

Whether the state will also be receiving PILT from the producers or will still be paid based on a mill rate of 20 is unclear, Navarre said.

If the companies do make a PILT to the state and perhaps decide to make the payment one time instead of dealing with regular municipal tax structure changes, and then the state determines how to distribute the payments to municipalities, is a “huge issue,” Navarre said.

“And we don’t know (the method), and if it’s allocated by valuation, fine,” Navarre said. “The borough is probably OK with that, but we don’t know any of the details that’s the biggest issue.”

Kaylee Osowski can be reached at kaylee.osowski@peninsulaclarion.com.

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