At its Tuesday meeting, the Kenai Peninsula Borough Assembly made an important decision to protect the borough’s financial interests.
The assembly approved a measure brought forward by Borough Mayor Mike Navarre to work with other municipalities to hire a consultant to analyze the potential impact a natural gas pipeline would have on municipal tax revenues.
While a gas pipeline project, especially one with a terminus and gas liquefaction plant in Nikiski, would no doubt be a boon to the borough’s economy, the borough administration has some concerns, especially with a part of the proposed agreement that would allow producers to make a payment in lieu of taxes, instead of ad valorem taxes, on oil and gas property. In other words, the state could negotiate a payment in lieu of taxes from the oil and gas industry that’s significantly less than revenues collected under the current tax structure based on the assessed value of oil and gas property.
According to a memo to the assembly from Navarre, the agreement with producers could apply the payment in lieu of taxes to existing oil and gas property as well as future development, regardless of whether a pipeline is ever built. Bills up for consideration in the Legislature would authorize the commissioner of the state Department of Natural Resources to engage in confidential negotiations to develop terms for a natural gas pipeline.
Navarre is working with mayors from other affected municipalities, including the Fairbanks North Star Borough, the North Slope Borough, and the city of Valdez to ensure that municipalities are able to participate in discussions that would significantly impact local tax revenue.
Fiscal concessions may be necessary to get a pipeline built, but those impacted should have a voice in how far concessions go. With the state and producers finally moving forward on the project, the action by the borough assembly and administration is a smart and prudent move.