Amendment puts brakes on tax break bill

JUNEAU (AP) -- House Finance Committee Co-Chairman Eldon Mulder halted action on a natural gas line tax break bill Friday after losing a vote on a key amendment.

The Finance Committee voted 6-4 to change a potential $760 million tax break for a North Slope pipeline project from an outright exemption to a tax deferral that might have to be repaid.

Mulder, R-Anchorage, was clearly irritated at being on the losing end of the vote. After a brief break during which Mulder met with the bill's supporters, the committee moved quickly through several other amendments before Mulder ended the meeting without calling a vote on the bill itself.

He said afterward, he would bring the bill up for action ''when the spirit feels.''

He complained that with the amendment, the bill does nothing to enhance the likelihood of a pipeline being built.

''They neutered any positive effect,'' Mulder said.

The measure, sponsored by Rep. Pete Kott, R-Eagle River, initially would have exempted a gas pipeline from the North Slope from local and state property taxes while it is being built and for the first two years of operation.

The state's three major oil companies -- BP, Phillips Petroleum and Exxon Mobil -- so far have said they're not sure they could make enough money to justify spending $15 billion to $20 billion to build a pipeline from the North Slope to the Lower 48.

Bill Allen, the president and CEO of Anchorage oil field services company Veco Corp., is pushing the bill. He said it could help start a whole new gas industry in Alaska, and the benefits would more than offset the tax losses.

Officials in Gov. Tony Knowles' administration, however, have said a better approach would be for the Legislature to authorize negotiations between the state and the industry over tax breaks or other incentives.

Rep. Jim Whitaker, R-Fairbanks, sponsored the amendment to change the tax waiver to a deferral. Under his amendment, the state would negotiate with the producers when the tax would be repaid and how much of it, with the possibility of none of the deferred taxes being repaid.

Whitaker said he believes that's still a powerful incentive.

''You get it. You get the deferral. It is substantial. It is a lot of skin in the game, but sometime in the future you're going to have to negotiate to pay them (taxes) back,'' Whitaker said.

But Rep. Con Bunde said he does not believe a deferral will be enough to push a project forward, and the producers may simply invest their money in projects elsewhere.

''Right now I think in Alaska the producers frankly don't give a damn whether they produce that gas or not,'' Bunde said. ''The cards are not stacked on our side.''

Michael Hurley of Phillips Alaska said the change would be a much less effective incentive because the tax break is a loan, rather than an outright exemption.

Those voting for the amendment were Republicans Bill Hudson, Ken Lancaster and Whitaker and Democrats Eric Croft, John Davies and Carl Moses. Voting against the amendment were Republicans Mulder, Bunde and John Harris and Democrat Richard Foster, who is a member of the Republican majority caucus.

The bill's sponsor, Kott, said after the meeting that the producers are no longer interested in the bill, and he sees no point in pushing it, unless some legislators change their minds.

''I guess it just kind of lies dormant,'' Kott said.

BP spokesman Ronnie Chappell, however, said BP still sees value in the bill because it also reauthorizes a law that would let the producers and the state negotiate a long-term tax and royalty structure that could give producers certainty about long-term costs.

Hurley said Phillips' officials had not yet met to discuss the changes in the bill, and he did not know if they still support it.

Finance Committee members made several other amendments Friday.

They added language setting up a fund to help municipalities that could lose property tax revenue under the bill. The fund would help communities cope with expected impacts of pipeline construction on local services, such as roads and police.

Future legislatures would have to actually put money in the fund.

The committee also adopted an amendment calling for a project labor agreement, if possible, which means the companies would need to make a deal to use union labor.

Rep. John Davies, D-Fairbanks, said that makes it more likely that Alaska workers will get jobs on the project.

The committee also approved an amendment by Mulder to make the tax deferral effective through construction and for 24 months after production starts. Earlier language could have allowed the tax break to continue close to three years after production started.

Under Mulder's amendment, the tax incentive would be pulled off the table in 2012, unless litigation or other reasons outside the producers' control slowed the project's progress.

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The bill is House Bill 519.