Legislature(1999 - 2000)
01/25/2000 10:04 AM House O&G
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
January 25, 2000
10:04 a.m.
COMMITTEE CALENDAR
PRESENTATION ON CITY OF VALDEZ VESSEL TAX
TAPE
00-3, SIDES A AND B
CALL TO ORDER
Representative Whitaker, Chairman, convened the House Special
Committee on Oil and Gas meeting at 10:04 a.m.
PRESENT
Members present at the call to order were Representatives
Whitaker, Dyson, Green, Harris, Porter, Kemplen and Smalley.
Representatives Dyson and Brice arrived as the meeting was in
progress.
SUMMARY OF INFORMATION
CHAIRMAN WHITAKER announced that the committee would hear a
presentation and then could ask questions about the tax on oil
tankers recently passed by the City of Valdez. He charged the
committee with understanding the rationale behind that action.
He then introduced David C. Cobb, mayor of the City of Valdez;
David Dengel, Valdez City Manager; and William M. Walker,
attorney representing the City of Valdez.
MR. COBB began with a brief presentation, followed by a question-
and-answer session involving committee members and the three
spokesmen. Information provided in the presentation and
discussion included:
In the past ten years, Valdez's tax base has been declining at
the rate of 7 percent per year, a decline that is projected to
continue, leaving the city without a stable revenue platform.
This is not simply a local manifestation of the same declining
revenue problem faced by all Alaskan communities, and by the
state itself. Rather, it is unique to three communities impacted
by the Trans-Alaska Pipeline System (TAPS): the North Slope
Borough, Fairbanks, and Valdez.
The manifestation of the problem in Valdez is that the oil
industry, source of at least 80 percent of the city's tax
revenue, is paying a decreasing amount to the city, which has 15-
20 miles of the Trans-Alaska Pipeline System (TAPS) and the
pipeline terminal within its boundaries.
The ad valorem tax that the oil industry pays to the State of
Alaska originally was based on a straight-line depreciation over
the life of TAPS. The state passes on a portion of that to
affected communities, those through which TAPS passes.
The original agreement was modified by the 1986 TAPS Settlement
Methodology (TSM), an agreement between the oil industry and the
state that accelerated depreciation of TAPS. That has diminished
the amount of revenue going to the affected communities. In
addition, the TSM has no statutory floor. That means city revenue
from the TSM agreement can diminish to zero while the city still
is providing infrastructure used by the oil industry there.
In response to the decline in revenue, the City of Valdez has cut
costs, reducing its budget by 24 percent and its personnel by 17
percent. It also has raised the rate of property taxes from 6
mills to 20 mills, which shifts more of the total tax burden to
non-oil sources.
After this effect of the TSM was recognized, the legislature
provided $750 thousand to help offset some of the impact. In
1996, discussions began about payment in lieu of a tax to as a
long-term solution to the continuing decline of revenue.
Meetings and discussions came to naught, and in 1997, Valdez
passed an ordinance taxing vessels that call there. At the
governor's request, Valdez repealed the tax, and with the other
two affected communities, continued to negotiate with the oil
industry.
The outcome was a two-year agreement in which declining revenue
to the communities was reduced to the rate of 4 percent last year
and 6 percent this year. That has helped in the short term, but
there is still no long-term solution that would stabilize income
to the affected communities.
In November 1999, Valdez again passed a personal property tax on
all vessels more than 95 feet long, a tax that Valdez says is not
unlike the personal property tax the City of Anchorage collects
on aircraft landing at the municipal airport there. Property
taxes on those aircraft are prorated among the jurisdictions
where the airline goes. Portland, Oregon, assesses a similar tax
on vessels using the Columbia River. The new Valdez tax went
into effect January 1, and tax bills will be sent out in March.
The assessments are subject to appeal. Taxes are due in July and
September.
The tax will cost the oil industry an additional 1.2 to 1.5 cents
on each barrel of oil. The new tax on vessels will broaden the
tax base in Valdez, allowing the city to lower the property tax
rate from 20 to 12 mills. That would provide tax relief to non-
oil property owners and assure the city of an adequate tax base
to support local infrastructure. The tax also would benefit the
state, resulting in a net increase of $3.1 million.
Proponents say this is a local taxing issue, legal under both
state and federal law. They also say that it is the only
recourse open to the city because it was not a party to the TSM
agreement.
Other alternatives mentioned would require action on the part of
the state, the ultimate authority involved in negotiation with
the oil industry concerning the pipeline. The state and the oil
industry could renegotiate or amend the TSM agreement.
Possible avenues to a solution might be: (1) modifying the TSM
formula for depreciation; (2) establishing a floor to
depreciation; (3) modifying the TSM agreement to give Valdez
direct tax jurisdiction over the pipeline terminal, as Kenai has
over the liquefied natural gas terminal there; or (4)
establishing payment in lieu of taxes to the involved
communities.
CHAIRMAN WHITAKER informed members that the committee will hear
other presentations providing different perspectives on the
Valdez vessel tax.
COMMITTEE ACTION
The committee took no action.
ADJOURNMENT
The committee meeting was adjourned at 11 a.m.
NOTE:
The meeting was recorded and handwritten log notes were taken. A
copy of the tape and log notes may be obtained by contacting the
House Records Office at Room 229, Terry Miller Legislative Office
Building, 129 Sixth Street, Juneau, Alaska 99801-1182, (907) 465-
2214, and after adjournment of the second session of the Twenty-
first Alaska State Legislature, in the Legislative Reference
Library.
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