Legislature(2015 - 2016)BELTZ 105 (TSBldg)
04/14/2015 03:30 PM Senate COMMUNITY & REGIONAL AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| HB75 | |
| SB100 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 75 | TELECONFERENCED | |
| *+ | SB 100 | TELECONFERENCED | |
SB 100-NORTH SLOPE GAS PROJ PROP TAX; ASSESSMENT
3:40:38 PM
CHAIR BISHOP called the committee back to order and announced
the consideration of SB 100.
3:40:55 PM
RANDALL HOFFBECK, Commissioner, Department of Revenue (DOR),
Juneau, Alaska, explained that three components need to be
considered to establish a property tax structure or Payment in
Lieu of Taxes (PILT) for the Alaska Liquefied Natural Gas
(AKLNG) Project as follows:
1. Impact payments during construction.
2. Durable and predictable property tax structure that would
last through the duration of the fiscal commercial
contracts on the pipeline.
3. How the total take that would come from the property tax
structure would be distributed between various government
entities between the state and local jurisdictions.
COMMISSIONER HOFFBECK specified that SB 100 primarily focuses on
the second point, the property tax structure during the
operation of the pipeline project.
3:42:17 PM
He revealed that before the new administration came onboard, the
past administration had established a Municipal Advisory Gas
Project Review Board (MAGP Board) to make recommendations for a
property tax structure on the AKLNG Project. He said the MAGP
Board had met multiple times and produced a report that was
submitted to the governor at the end of the last administration.
He disclosed that several property tax structure components were
presented from the report that would be important in creating a
lasting program as follows:
· Fair and equitable to all stakeholders, municipalities, the
state, and the producers.
· Clarity in order to avoid litigation that surrounded the
Trans-Alaska Pipeline System (TAPS).
· Robust and durable, something that would last through the
initial commercial agreements' life.
· Unambiguous so that the property tax structure would not be
subject to judgement and interpretation.
· Commercially sound so that the pipeline can compete in the
global market.
3:44:20 PM
He stated that the producers' feedback was that simpler was
better regarding a property tax structure. He detailed the
producers' property tax preferences as follows:
· Fewest barriers as possible within the tax calculation.
· Tax law that had more general application, but still met
their project expectations and was acceptable to the
municipalities.
· Taxes tied directly to the amount of gas flowing through
the pipeline, something that was measurable and simple,
either in cents per Million Cubic Feet (MCF) or cents per
Million British Thermal Units (MMBTU).
COMMISSIONER HOFFBECK said input from MAGP Board and the
producers was used by the department to create a formula that
could meet the objectives that were presented as follows:
Actual cost times a throughput adjustment, which was
actual flow divided by the design flow, it did have an
exponential adjustment due to the non-linear
relationship between the cost of building the pipeline
versus the amount that the pipeline can carry, times
the indexed inflation rate, times 20 mills, then times
an adjustment factor that could be used to turn the
value up or down in order to meet the economic
conditions of the pipeline to make the pipeline
economic.
3:46:17 PM
He noted that the feedback from the producers included
commentary on the mill rate and capital cost. He said the
producers pointed out that the proposed gas liquefaction plant
in Nikiski is statutorily excluded from the 20 mill rate and
should be assessed at whatever the local mill rate is.
He added that the producers addressed the capital cost where
originally the structure was looking at the cost at the
completion of the construction; however, the producers thought
it would be more beneficial if the project's cost could be based
on the estimated costs at the Final Investment Decision (FID).
He detailed that using the estimated cost at FID would allow for
the economics of the property tax to be predicted while the
economics of the pipeline itself was being computed, that way
the project did not have to be complete in order to figure out
what the total take from the property tax would be.
3:48:17 PM
He said the producers addressed depreciation and obsolescence
and looked more at the idea of a fixed component for
depreciation as well as inflation. He explained that the
producers preferred to have an adjustment agreement on inflation
and depreciation that is negotiated within the fiscal package
rather than having calculated components.
He added that producers remarked about the flow adjustment
calculation that used an exponent that made the formula overly
complicated. He said the producers felt that the exponent was an
unnecessarily arbitrary variable and the formula was robust
enough to deal with the economics without having to add an
adjustment factor at the end.
COMMISSIONER HOFFBECK disclosed that the input from the
producers was shared with MAGP Board and the formula was
adjusted as follows:
Capital cost times an inflation component, which is
just one times whatever the inflation rate would be to
the number of years, times the depreciation factor,
times the actual throughput over the design
throughput, times the mill rate.
He noted that the exponent would be left in with the throughput
calculation, but the MAGP Board set the exponent at one. He
detailed that setting the exponent at one rendered the
calculation meaningless, but MAGP Board thought the exponent was
important to leave. He added that the mill rate would be
whatever the statutory rate was for the various components of
the pipeline.
He disclosed that MAGP Board agreed to use the FID for capital
costs, but asked that a 10 percent uplift be applied due to the
uncertainty of cost overruns. He added that MAGP Board
recommended using a 4 percent inflation rate and a 50 year
floating-life for the depreciation factor in order that the
depreciation would never take the value of the pipeline to 0. He
detailed that the throughputs would be done on a 5-year floating
average in order to take away any large swings that might come
from unanticipated disruptions that are not reservoir related.
CHAIR BISHOP asked to confirm that the producers' concerns were
presented to MAGP Board and the board wanted to uplift FID by 10
percent.
COMMISSIONER HOFFBECK answered yes.
3:50:36 PM
He detailed that the feedback from the producers was that the 20
mill rate could be accommodated through other adjustments in the
formula, but their preference was that the gas liquefaction
plant be treated as a locally assessed asset at the lower local
mill rate. He detailed that the producers felt that having an
uplift on the capital costs would just exasperate any economic
issues that would be associated with cost overruns. He said the
producers asserted that cost overruns where already creating
economic difficulties for the project and increasing the
property taxes based on the overrun would make it worse by
introducing uncertainty. He reiterated that the producers
preferred a fixed depreciation and obsolescence component and
asked that an inflation escalation slope be considered with a
lower initial property tax to provide economic benefits on the
front end.
COMMISSIONER HOFFBECK pointed out that using impact payments
during construction lowers the burden from property taxes going
in. He added that using a 5-year average could take as much as 8
years before the property would be at its full value, depending
on how quickly all of the throughput is brought up to full
capacity, but the lower burden formula eventually crosses over
the standard property tax regime's projection where inflation
would increase the value. He asserted that there would be some
opportunities on the out-years for the municipalities to benefit
and using the time-value of money at different discount rates
between industry, local, and state would provide an opportunity
for both parties.
3:53:36 PM
He set forth that the final formula that is embedded within the
draft language as follows:
Original cost, times an inflation factor, times a
depreciation factor, times the actual throughput,
divided by design throughput with no exponent, times
20 mills.
He asserted that the formula's beauty is that the original cost
would be fixed by the project, either by estimates or actual
cost. He detailed that the inflation factor would be fixed
within the fiscal agreements as would be the depreciation
factor. He added that the actual throughput would be a
measurable annual number and would not be subjective, design
throughput would be fixed by project specific data, and the mill
rate would be fixed by statute. He summarized that the final
formula's simple and straight forward approach gets away from
all of the variables that have plagued the TAPS value.
SENATOR STEDMAN asked to confirm that the inflation rate would
be set at 4 percent.
COMMISSIONER HOFFBECK replied that MAGP Board decided on 4
percent, but the number is certainly not locked down and will be
negotiated as part of the commercial agreement. He noted that he
had asked MAGP Board to review inflation over the past decades
and the actual inflation rate was a little less than 3 percent.
CHAIR BISHOP asked that Commissioner Hoffbeck walk through the
bill.
3:56:00 PM
COMMISSIONER HOFFBECK addressed the bill's sections as follows:
· Section 1, simply breaks out the gas line as a
separate asset within the AS 43.56 tax statutes.
· Section 2, amends AS 43.56.060(e) in the pipeline
section to add the conforming reference to exempt
property exclusively used for North Slope natural gas
project and move it to subsection (h).
· Section 3, is the actual subsection (h). There are two
parts, the first sentence is more or less a
placeholder for impact payments. When first drafted,
there was no statement as to what happened during
construction and we felt that could create some
confusion that the language exempted the project from
any kind of tax payments during construction, so the
sentence was added that says the full and true value
will be calculated each January 1 with the intent that
the language will eventually be replaced with a
schedule of impact payments versus the generic
statement. The second sentence is a narrative
description of the formula which is simply the
original cost adjusted for inflation, reduced by an
annual allowance for depreciation, and the remaining
is subject to a throughput factor.
3:58:05 PM
He addressed Section 4 as follows:
· Section 4 amends the statutory language for a taxable
property. The "bolded" and underlined portion brings the
gas liquefaction plant itself under AS 43.56 statutes
rather than leaving it under the local assessment statutes.
He explained AS 43.56 as follows:
The way AS 43.56 works is it is a flat 20-mill levy,
2-percent levy, against the value of oil and gas
property within the State of Alaska, that's assessed
by the state. Local jurisdictions can assess oil and
gas property as well using whatever mill rate they
charge every other property within their jurisdiction.
What the oil and gas companies pay the local
jurisdictions is then used as a credit against the 20
mill levy that they pay the state.
COMMISSIONER HOFFBECK summarized that the language in Section 4
takes the gas liquefaction plant out of the lower taxing
structure of the local assessment and moves it into the 20 mill
levy in the oil and gas assessment. He disclosed that the
producers saw the 20-mill levy on the gas liquefaction plant as
an extra burden that the project has to carry because the levy
raises their tax burden. He said the department recognizes that
the levy will have to be compensated for within other parts of
the formula or within other economics of the project because the
intent is not to raise the tax burden on the producers. He
asserted that at some point the distribution of revenues between
local jurisdictions and the state must be determined.
4:00:35 PM
He offered an example of government revenues distribution
between entities as follows:
Let's just say that the state chose to say that 50
percent of all revenues off of the property tax will
flow to the state before there is any allocations to
the municipalities. If everybody is under the same
taxing authority, everybody is under that same 20
mills. That's a relatively easy process where the
state takes the 10 mills off of the top and everybody
calculates the remainder below; but, if Kenai is only
locally assessed and there is no state levy, now you
get into the position of how does the state go in and
dictate to Kenai that their local assessment has to be
reduced by x-number because we are taking a certain
percentage of the value of the AKLNG property, it
really would require putting constraints on local
taxing authority which has multiple effects not the
least of which is how they can bond, so by moving it
over, everything is under the 20 mill, we can get away
with having to constrain local taxing authorities.
SENATOR EGAN asked if the state gets anything if a municipality
taxes at 20 mills.
COMMISSIONER HOFFBECK answered that under the current property
tax regime, the state would get nothing. He noted that Valdez
had taxed TAPS for years at 20 mills.
SENATOR EGAN asked to verify that the same situation would occur
under the new proposal.
COMMISSIONER HOFFBECK answered that there is nothing in the new
proposal that changes the scenario that Senator Egan described.
He admitted that the department is contemplating going back to
the municipalities to have a difficult discussion on determining
how much property tax revenue will flow locally and how much is
going to flow to the state. He pointed out that the revenue
distribution is not a project issue, the project is concerned
with the total amount. He said in negotiating the fiscals for
the project, the producers just need to know the total tax
amount and they do not care how the revenues are going to be
distributed around the state. He remarked that the distribution
of revenues really is a discussion between the state and the
local jurisdictions. He summarized that intent in crafting the
language was to make sure that process was not made more
difficult and that is why it was all moved under one standard
taxing authority.
4:03:07 PM
SENATOR STEDMAN asked for a rough estimation on the cost for the
gas liquefaction plant.
COMMISSIONER HOFFBECK answered approximately $25 billion.
SENATOR STEDMAN asked what the property tax would be for the $25
billion plant.
COMMISSIONER HOFFBECK answered $500 million.
SENATOR STEDMAN asked if there are readjustments, escape
clauses, or negotiating clauses if economic changes happens in
the future that disadvantages the industry or state.
COMMISSIONER HOFFBECK answered that statutes can be changed, but
the larger question pertains to how the exactly the commercial
agreements are going to be finalized and whether there will be
constitutional provisions or contractual agreements.
SENATOR STEDMAN asked to verify that the gas liquefaction
plant's dollar amount includes the dock and everything at the
site.
COMMISSIONER HOFFBECK answered correct.
SENATOR STEDMAN asked if the LNG ships were outside of the
taxing authority.
COMMISSIONER HOFFBECK answered yes.
CHAIR BISHOP asked to verify that the $500 million is an annual
amount.
COMMISSIONER HOFFBECK answered correct. He explained that the
formula is fairly open ended to take into account the $1 billion
per year on property taxes on a $50 billion project, an amount
that is a lot for the project to bear. He specified that rather
than locking in the $1 billion tax and making everything else
work, the thought was having some flexibility in the fiscal
negotiations was more prudent.
4:05:44 PM
SENATOR STEDMAN noted that Sitka was a 1-mill town for decades
and the millage rate was 3 mills. He asserted that the mill's
property tax rate worked very well for both the industry and
community. He asked what the magic was in 20 mills and how was
the number chosen.
COMMISSIONER HOFFBECK surmised that the 20 mill rate was based
on oil and gas legislation in the 1970s.
CHAIR BISHOP opined that everything was on the table because SB
100 was having its first hearing in the committee. He pointed
out that the committee is dealing with gas rather than oil from
40 years in the past. He asserted that there is a difference in
value, so all things are on the table.
SENATOR STEDMAN remarked that he does not understand why some
millage rate from 30 to 50 years ago is locked in on. He pointed
out that the millage rate and formula can be changed to come out
with the same numeric, but opined that the 20 mill rate seems
extremely high.
COMMISSIONER HOFFBECK noted that he was an assessor and 20 mills
is kind of a breaking point where taxpayers won't allow it to go
any higher. He pointed out that the only real concerns within
the existing property tax laws is that everybody has to be taxed
at the same rate. He opined that care should be taken to not
create a threshold that is lower than the local mill rates where
people start feeling like the big industrial property was not
paying the same rate as everybody else.
4:08:51 PM
SENATOR STEDMAN remarked that the amount of money that would go
into local coffers would be huge from the shear value and
dominance of the property. He reiterated that Sitka had a 3-mill
rate and the pulp mill virtually carried the whole town and
enabled taxpayers in the community to pay 3 mills. He remarked
that Sitka could have raised the property tax rate to 20 mills
and the pulp mill would have paid it, but then everybody would
have had to pay 20 mills. He admitted that the economic models
were a little different in the late 1950s, but the 3-mill rate
worked very well in Sitka for decades and did not engulf the
industry and the community in a lot of adversarial dialogue.
COMMISSIONER HOFFBECK remarked that he did not disagree with
anything that Senator Stedman said. He detailed the property tax
revenue benefits for the state as follows:
When we talk about the potential revenues to the state
from a gas line at $4 billion a year, $1 billion of
that is anticipated to be the property tax component.
We need to realize that the state will be the largest
recipient of the property taxes when it is all said
and done of any individual entity and then if the
state decides to trim everybody back, saying this is
more than local jurisdictions need, even more money
flows to the state; it is not unreasonable to think
that $500 million to $700 million of this property tax
would actually flow to the state rather than to local
jurisdictions.
He set forth that property tax revenue is a steady income
stream. He noted that the state's 25 percent share in gas can be
fairly variable due to gas prices. He summarized that property
tax revenue has to be part of the total fiscal package and needs
to be treated as asset in negotiations.
4:11:32 PM
SENATOR EGAN noted varied tax factors as follows:
The state's tax structure, a whole bunch of different
factors weigh in. There are communities in the state
that have 20 mills, there are communities that charge
much less and have a sales tax, there are major
communities in the state that don't have a sales tax,
so that's got to weigh into the discussion as well. My
community is not served by this, I mean it's not going
to be effected right off the bat, but that has to be
taken into consideration as well, our total tax
structure and how it is written.
COMMISSIONER HOFFBECK replied that Senator Egan was right. He
specified that the 20 mill levy in the formula sets the total
take and how the revenue gets divided up was still a discussion
that needs to occur. He said the lawmakers could say that it
does not care what the mill rates were and dictate that each
jurisdiction gets a 5 mill equivalent against the value in their
jurisdiction. He remarked that a lot of different things could
be done to figure out how to "divide up the pie."
SENATOR EGAN asked to verify that a community could have an
opportunity to collect the 20 mills and still charge an
additional 5 percent or 6 percent sales tax.
4:13:20 PM
COMMISSIONER HOFFBECK answered yes.
SENATOR EGAN explained that Juneau has mill limits and other
communities do as well, but noted that Juneau has done
initiatives for sales taxes as well. He admitted that more
thought would have to be put into the state's tax revenue.
SENATOR STEDMAN asked to clarify that $500 million in taxes
would come from the gas liquefaction plant and the state owns 25
percent of the gas liquefaction plant as well.
COMMISSIONER HOFFBECK answered correct.
SENATOR STEDMAN asked if the state's 25 percent is included in
the $500 million where the 25 percent is knocked out to see the
net.
COMMISSIONER HOFFBECK answered that currently the state's
percentage is included in the property tax. He detailed that
there has not been any final discussion on whether the state
will be a taxpayer or not. He pointed out that a lot of the
decision ultimately has to do with TransCanada and a few other
things as to whether the state's portion is a taxable entity or
not.
CHAIR BISHOP asked how the gas treatment plant (GTP) would be
taxed and where would the revenue go.
COMMISSIONER HOFFBECK answered that the GTP's value would be
taxed under AS 43.56 at 20 mills. He explained that under the
current tax structure, the revenue would go to the North Slope
Borough. He noted that the North Slope Borough typically
assesses at 18.5 mills. He revealed that another provision
within the property tax statutes limits the amount of revenue
that can flow to any jurisdiction, the statute changed the
previous year and used to be fixed at 225. He detailed the
formula as follows:
The formula was you took the statewide per capita
assessed value, so how much per person statewide,
times 225 percent, that was the limit of your taxable
asset that you could tax, times 30 mills would be the
maximum amount of revenue that you could actually
generate for operations within your jurisdiction.
He revealed that the North Slope Borough is already capped and
any additional property tax revenue would not be allowed for the
gas operations. He noted that there is another provision that
states that there is no cap for bonded debt, so the North Slope
Borough could acquire additional bonded debt and tax at a little
bit higher rate, but there would likely be a debt component. He
specified that there would be absolutely no more money that
would go towards operations to the North Slope Borough, so the
GTP's mill rate would drop and the money should flow back to the
state.
4:16:19 PM
SENATOR STEDMAN asked to verify that everything upstream to the
point of production would fall under the current structure on
gas.
COMMISSIONER HOFFBECK answered correct. He pointed out that
there is one more provision that will be reviewed in the next
section of SB 100 that actually tightens the structure a bit
more.
SENATOR STEDMAN asked if there have been any conversations on
what kind of buildout might or might not come after construction
of the AKLNG line.
COMMISSIONER HOFFBECK answered no.
He addressed section 5 as follows:
Section 5 amends AS 43.56.210, adding subsection 7,
which defines the various components of the project;
it says the North Slope Natural Gas Project means a
project to transport gas produced north of 68 degrees
north latitude to gas treatment plant, a gas pipeline,
a liquefaction plant, and a marine terminal, and then
it goes on to fairly generic fashion to define each of
those four components. There are two things that I'd
like to point out on the gas pipeline, at the very end
of the last sentence, there's a provision that says,
"Including any pipelines down stream of an offtake
point between a gas treatment plant and a liquefaction
plant;" so what that is saying is anything between the
GTP on the North Slope and the liquefaction plant in
Kenai, if there's any offtake points, anything past
that offtake point does not fall under this agreement,
it would be a separate asset taxed separately.
CHAIR BISHOP asked if the sentence Commissioner Hoffbeck
referred to could be called "middle earth."
COMMISSIONER HOFFBECK answered yes. He reiterated that anything
beyond an offtake point is not part of the project.
SENATOR STEDMAN inquired what the property tax collected by the
state for oil and gas revenue was, including municipalities. He
said he recalls $450 million was collected.
4:18:45 PM
COMMISSIONER HOFFBECK replied that he thought the amount was
mid-$300 million.
SENATOR STEDMAN asked if Commissioner Hoffbeck's estimation was
the state's share.
COMMISSIONER HOFFBECK responded that the he thought the total
oil and gas property tax collected was in the $16 billion range.
SENATOR STEDMAN hypothesized as follows:
Say it is $350 million, just for conversation, so if
our current infrastructure is worth $350 million, then
this additional construction is going to be worth
somewhere at $1 billion, not to the state, but in
gross value. Does the formula before you deduct out
the state's percentage of ownership?
COMMISSIONER HOFFBECK answered correct. He specified that the
value of the project will probably be as much as three times the
value of the existing oil and gas assets within the State of
Alaska.
SENATOR STEDMAN asked to verify that Commissioner Hoffbeck's
statement does not include any buildout.
COMMISSIONER HOFFBECK answered yes.
SENATOR STEDMAN asked if the state can we get a pre-payment.
COMMISSIONER HOFFBECK pointed out that another component within
the definition is in the GTP and the final line goes to Senator
Stedman's question and says, "Excluding any transmission lines
that deliver gas to the inlet flange of the facility." He
revealed that a tighter boundary was drawn for property taxes
that had been discussed in other presentations. He specified
that the Point Thomson pipeline would not be part of the AKLNG
Project nor would the pipeline from the central gas facility,
the GTP. He explained that the tightened property tax boundaries
was done to deal with expansion issues and clarify that
pipelines feeding the GTP would not automatically fall under the
fixed PILT, the asset would be taxed separately. He noted that
producers feared that taxes would possibly double on a pipeline
like Pt. Thomson. He reiterated that Pt. Thomson would be taxed
under the standard tax regime, but starting at the inlet flange
all would fall under whatever is agreed in the PILT for the
project.
He summarized that the pushbacks from the producers were as
follows:
· 20 mill rate.
· Tying a tighter boundary around the project.
· Anticipating a PILT with a fixed cents per MCF or cents per
MBTU.
COMMISSIONER HOFFBECK admitted that the necessary inputs are not
available for the formula to derive what the project will cost
and how much gas is going to be carried.
4:22:02 PM
SENATOR STEDMAN asked how the state will be protected with
alignment where alignment translated into a percent of the gas
equaling to the percent of the ownership with the
infrastructure: GTP, pipeline, and liquefaction plant. He
continued to comment as follows:
It just appears on the surface the further we get away
from that with TransCanada's ownership, the more risk
that we have as a state getting these numbers off. If
we are low, or for that matter high, and we are in
balance or in alignment with the industry, so it
pretty much will come out in the wash, a lot easier
than if TransCanada is in the middle of our lunch
table eating our beef sandwich and we get a little bit
of salad on the side or something. So there is at some
point I think we need to have that type of
conversation so we understand as policymakers any
potential imbalance or balancing that may take place
as we change that ownership percentage.
COMMISSIONER HOFFBECK agreed that a discussion will need to
occur and TransCanada's ultimate position in the pipeline is
still not determined.
CHAIR BISHOP agreed that the AKLNG project is going to have far
reaching impacts on communities along the route as well as
communities not connected to the route. He referenced the
impacts of TAPS on Fairbanks and asked that in order to defray
costs to the municipalities, how would SB 100 or the
administration handle impacts during the construction of the
AKLNG pipeline.
COMMISSIONER HOFFBECK explained that the discussion on impacts
was underway with three avenues being reviewed to determine
impacts as follows:
1. Environmental impact process with the Federal Energy
Regulatory Commission (FERC), impacts will be identified,
but a dollar value is not attached.
2. The department has a tremendous amount of information that
was developed under the Stranded Gas Development Act and
the Alaska Gasline Inducement Act (AGIA).
3. Within the sponsor group there is a team that is working on
impacts.
COMMISSIONER HOFFBECK summarized that all of the impact
information will ultimately come together and the department
will try to come up with a schedule of impact payments and a way
to determine where the payments should be distributed. He
revealed that the impact discussion was underway with MAGP
Board.
4:25:36 PM
SENATOR STEDMAN asked to address substantial property taxes
given during the construction phase for a mega-project that is
extremely capital intensive like the AKLNG Project. He pointed
out that consideration has to be given to not burden the
economics of the time-value of money in the calculation in
trying to move the project forward. He asked that Commissioner
Hoffbeck address why the state might or might not consider
relief on any big project.
COMMISSIONER HOFFBECK answered that the biggest impact on the
project is the time before actual revenue is being generated
with outflows of cash during construction with no inflow of
revenue. He explained that the time-value of money is the lost
opportunity elsewhere where the money could be used to generate
revenue. He pointed out that the tax burden is something that
does not really add to the value of the project during the
period before revenue is being generated, but the taxes are a
significant outflow of cash to the project.
He asserted that the state is very sensitive to the relief issue
as are the producer groups. He explained that the idea would be
that rather than having $1 billion taxed incrementally during
construction, a lesser amount would be paid that would
sufficiently cover direct and indirect impacts from construction
that would hold the municipalities whole and yet would not put a
lot of impact on the pipeline where the taxes could be deferred
or simply becomes part of the state's contribution to the
project. He said there are a lot of ways to deal with municipal
impact, but there is real sensitivity to the early cash flow
years prior to revenue paying the taxes.
4:28:26 PM
SENATOR STEDMAN remarked that as policymakers, looking at the
AKLNG Project as potentially in boroughs entirely from coast-to-
coast was in the state's best interest in how property taxes are
handled.
COMMISSIONER HOFFBECK replied that the potential for Senator
Stedman's statement does exist. He opined that there is some
hope by the state that the project would create incorporation
within areas that would have a local government and revenue
source where the state would not have to take care of the areas.
He noted that the entire borough scenario for the project has
not occurred around the TAPS pipeline.
4:30:17 PM
SENATOR STEDMAN recommended that a stress test would be a good
exercise in the direction that he suggested. He opined that the
recent oil tax structure was not stress tested anywhere near
enough and ultimately led to some issues that the state is
currently dealing with. He summarized that the agreed upon tax
formula should be stress-tested under several scenarios.
CHAIR BISHOP pointed out that the sponsor statement talks about
taking recommendations from the MAGP Board regarding PILTs, but
SB 100 does not specifically address PILTs.
COMMISSIONER HOFFBECK answered that the bill does not make it
all the way to the PILT process. He set forth that SB 100
isolates the components needed for working through the fiscal
negotiations and gets rid of a lot of the issues associated with
TAPS.
He stated that he would like to addresses Senator Egan's
comments on property taxes and Chair Bishop's question on PILTs.
He noted that the Denali Borough is a jurisdiction that the
pipeline will flow through that does not have a property tax,
but the borough is obviously interested in having a PILT to get
some value off of the project without having to implement a
property tax. He said there are issues associated with the PILT
versus a standard taxing authority that needs to be addressed.
COMMISSIONER HOFFBECK addressed PILTs and said the producers
ultimately desire a cents per MCF PILT that could be applied to
every molecule of gas that flows down the pipeline, ultimately
making the calculation much easier.
4:33:08 PM
CHAIR BISHOP asked if the proposed tax assessment in SB 100
takes into account the 12 FERC resource books, particularly book
number-5 which deals with community socioeconomic conditions.
COMMISSIONER HOFFBECK answered that the particular resource book
Chair Bishop noted is anticipated to be part of the analysis on
impact payments. He added that he believes that MAGP Board is
aware of the public hearings associated with FERC and intends to
have some input as well.
CHAIR BISHOP noted that he appreciates Commissioner Hoffbeck's
comments on "getting it right." He concurred that a mega-project
does burn through some major cash during the construction phase
and recounted his TAPS construction days as to how critical the
first tanker out of Valdez was.
4:35:21 PM
COMMISSIONER HOFFBECK shared that MAGP Board expressed the same
sentiment in recognizing that the project has to work
economically as well. He opined that the change in sentiment was
due to the stranded gas days where there was a lot of animosity
between the state, producers, and municipalities. He said MAGP
Board has been very open and willing to work the issues. He set
forth that a lot of the credit has to go to the early
involvement of the Parnell Administration that brought MAGP
Board in early in the process.
CHAIR BISHOP noted that decisions have not been made on Royalty
In Kind (RIK) from SB 138 and PILT from SB 100. He asked if the
project is sliding behind schedule because the two benchmark
decisions have not been made.
COMMISSIONER HOFFBECK answered no. He detailed that a lot of
work is being done to set the foundation for making good
decisions rather than being driven by a timeline. He set forth
that the project is definitely within the time frames laid out
by the heads of agreement (HOA).
4:38:44 PM
CHAIR BISHOP announced that seeing and hearing no other
comments, SB 100 will be set aside.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 100 Presentation on Property Tax Bill.pdf |
SCRA 4/14/2015 3:30:00 PM |
SB 100 |
| SB 100 Sectional Analysis.pdf |
SCRA 4/14/2015 3:30:00 PM |
SB 100 |
| SB100 Fiscal Note-0832-DOR-TAX-4-1-15 (3).pdf |
SCRA 4/14/2015 3:30:00 PM |
SB 100 |
| SB100 Sponsor Statement.pdf |
SCRA 4/14/2015 3:30:00 PM |
SB 100 |
| SB100 Supporting Documents - DOR Hearing Request Letter.pdf |
SCRA 4/14/2015 3:30:00 PM |
SB 100 |
| SB100 ver A.PDF |
SCRA 4/14/2015 3:30:00 PM |
SB 100 |
| CSHB 75 Letter of Support CBJ.pdf |
SCRA 4/14/2015 3:30:00 PM |
HB 75 |
| CSHB 75 Amendment Opposition CRCL.pdf |
SCRA 4/14/2015 3:30:00 PM |
HB 75 |
| SB 100 Support Letter Kenai Peninsula.pdf |
SCRA 4/14/2015 3:30:00 PM |
SB 100 |
| CSHB 75 Hoffman Amendment.pdf |
SCRA 4/14/2015 3:30:00 PM |
HB 75 |
| SB 100 MAGP Board PILT Modeling Analysis 3.2.15.pdf |
SCRA 4/14/2015 3:30:00 PM |
SB 100 |
| SB 100 Municipal Advisory Gas Project Review Board Annual Report - DOR 3.3.15.pdf |
SCRA 4/14/2015 3:30:00 PM |
SB 100 |