Gas pipeline tax break bill moving quickly

Posted: Monday, April 22, 2002

JUNEAU (AP) -- A measure giving up to $500 million in tax breaks for construction of a natural gas pipeline is moving quickly in the House.

Rep. Pete Kott, R-Eagle River, is sponsoring the bill, which would exempt a natural gas pipeline from local and state property taxes while it is being built and for the first two years of operation. It would also exempt it from sales taxes.

Supporters of the bill say the tax breaks are needed for a gas pipeline from the North Slope to be built. But state officials characterize it as a $500 million giveaway that should first be justified through negotiations with the industry.

''Essentially, we are providing a tax holiday, if you will, on sales tax and property tax,'' Kott said. ''I believe we are all going to have to sacrifice a little bit if we want to get something.''

Bill Allen, the president and CEO of Anchorage-based Veco Corp., supports the bill.

''Without this legislation the gas line will never likely be built,'' Allen said in a written statement.

Veco, an oil field services company, is influential in Alaska and a major contributor to many state political campaigns, including $2,500 in employee contributions to Kott's upcoming re-election campaign.

Allen said U.S. Sen. Frank Murkowski, who is running for governor, has indicated passage of Kott's bill would improve the chances of proposed federal gas line legislation that would streamline regulations and offer federal tax credits.

Murkowski's spokesman, Chuck Kleeschulte, said from Washington, D.C., that he did not know whether Murkowski has specifically endorsed Kott's bill.

Kleeschulte said Murkowski has said there are problems at the federal level trying to get gas line incentives ''because people keep asking, 'What is the state doing?'''

The three major oil companies on the North Slope so far have said that a $15 to $20 billion Alaska gas pipeline would not guarantee enough revenue to justify the risk.

But representatives of two of those companies, BP and Phillips Petroleum, told the House Special Committee on Oil and Gas on Friday that the federal legislation would be a substantial step forward.

''The federal issues are the most important,'' testified Joe Marushak of Phillips Petroleum. ''If those don't happen, I don't know how we can move the project forward.''

The BP and Phillips representatives also said Kott's bill would offer some fiscal certainty and help the project.

But state officials said a better approach would be to authorize negotiations between the state and the industry over possible tax breaks or other incentives.

Department of Natural Resources Commissioner Pat Pourchot said such talks would take into consideration whether giving up taxes for six or seven years is really needed to make a pipeline project work.

''The administration does not support the provisions of the (bill) that would provide a grant of some $500 million in state and local property taxes,'' he said. ''We do not support that -- outside of a negotiating process that would take into account the economic necessity of providing the incentives.''

Department of Revenue Deputy Commissioner Larry Persily said such negotiations could result in tax breaks during construction that would be repaid by the industry once revenues from the pipeline started to come in.

But the Veco representatives said that the bill, in addition to the grant of initial tax breaks, reauthorizes a process under which negotiations would occur between state officials and the industry over what would be a longer-term pipeline tax structure.

They said that waiting to negotiate over the shorter-term tax breaks could mean the companies move on to other worldwide projects.

The Oil and Gas Committee approved the bill on Friday. It's up for a hearing Monday in the House Resources Committee and Wednesday in the Finance Committee.

Sen. John Torgerson, R-Kasilof, is pushing a different approach in the state Senate. His bill would only allow state commissioners to offer tax breaks after a project sponsor showed that a North Slope pipeline would not be economically feasible otherwise.

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