Tesoro Alaska president warns against fuel tax

Posted: Tuesday, May 14, 2002

A fuel transfer tax, like the one proposed for the Fairbanks North Star Borough, would only hurt the Kenai Peninsula Borough, Tesoro Alaska President Rod Cason said last Wednesday.

Cason addressed the Kenai Chamber of Commerce to discuss the impact of a potential fuel transfer tax in the Kenai Peninsula Borough.

Though no such tax has been proposed here, Cason worries that a citizen-pushed initiative could bring the idea to the table.

That's what happened up north, Cason said.

Citizens, looking for a way to reduce property taxes, formed a grass-roots organization called A Better Future for Fairbanks and proposed adding a 2-cent-per-gallon tax to any fuel transferred through the Fairbanks borough. The group gathered more than 2,000 signatures on a petition, and the initiative will go before borough voters June 25.

Spokespersons for A Better Future for Fairbanks were not immediately available for comment, but the group's Web site claims the tax could raise up to $24 million per year, significantly decreasing property taxes for home and business owners in the borough and improving the area economy.

Assembly member Bill Popp said the tax may make some sense in Fairbanks, where property tax mill rates range from the high teens to low 20s. But, he said, such a tax would not be of much benefit on the peninsula, where rates are 11 to 12 mills.

Assembly member Pete Sprague said the tax needs further investigation before the assembly can make any definitive decisions.

"It's definitely something to consider, but I'd be surprised if the assembly moved forward in that direction at this time," he said. "It would be a pure revenue source for the borough -- in addition to property tax and sales tax -- but I have real concerns about the impacts if the borough were to pursue this."

Cason said the impact of a similar peninsula tax would create a competitive disadvantage to companies like Tesoro, which he said is the borough's third-largest taxpayer and a major player in the borough economy.

"The short version is, if this initiative passes, it's bad," Cason told chamber members as he began his presentation. "The long version is, if this initiative passes, it's really bad."

The 2-cent tax would hurt the refinery industry, Cason said, because the extra expense would either have to be passed on to buyers or absorbed internally.

He explained that one-third of Tesoro's sales consist of heavy oil, a byproduct produced while the company is making more marketable products such as jet and car fuel. The byproduct sells internationally at about $100 per ton. The tax would cost an additional $5 a ton.

"With a 5 percent markup, they're not going to buy from us. If we can't sell it, it backs up products out of the crude unit," he said.

Another third of Tesoro's business comes from selling jet fuel to Ted Stevens International Airport in Anchorage. The airport already imports about 10 percent of its fuel, and the tax would make it impossible for Tesoro to compete against the foreign companies.

The only other alternative, then, would be to pass the tax along to people buying gas for their cars by increasing the cost of gasoline about 74 cents per gallon -- an option he said would be obviously unacceptable to the public -- or to pay the tax out of the company's pocket.

Cason estimated the tax would cost about $20 million per year and would become the single largest expense item for Tesoro, surpassing even utilities and employee wages.

"I've been with Tesoro 27 years, and I can count on one hand the number of years we've made $20 million a year," he said.

"I don't want to give the impression that the refinery would be shut down -- we have nearly 600 employees and they're very important to me," he said. "But it would be very hard for us."

The assembly sought out Cason's input after receiving information on the tax from the Fairbanks North Star Borough.

"We have to review the information," said Sprague. "It's under discussion."

But when asked if the borough assembly was considering a similar fuel transfer tax, Popp replied, "God, no."

"The borough assembly is not interested in this in any way, shape or form," he said. "What we're concerned about is that a petition could start here based on exposure to the North Star issue."

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