Governor to propose lower property tax to support Alaska LNG mega-project

Gov. Mike Dunleavy plans to introduce a bill that would establish a low property tax for the giant Alaska LNG project, a move that would help support its development.

The bill, to be introduced at the start of the session, proposes a rate of 2 mills on the assessed value of the project, Dunleavy said in an interview Friday. That’s one-tenth of the 20 mills, or 2%, that the state levies on oil and gas infrastructure, a portion or all of which can go to local governments with such infrastructure, depending on their rates.

The governor said his bill would cover the length of the project’s lifetime, which has been estimated at 30 years or more.

The governor said his administration is also employing a third-party consultant to study potential sources of additional revenue from the project that could be available to the state and local governments.

Two borough mayors reached for this article raised concerns about the proposed tax rate, including whether local revenue from it would be offset by other benefits, and why the Dunleavy administration has chosen it as a starting point for legislative discussions without their input.

Peter Micciche, mayor of the Kenai Peninsula Borough, said he didn’t think the rate is high enough to win support from local governments that would host project infrastructure.

“We’re all supportive of the AKLNG project,” he said. “But it can’t solely be on the backs of our local taxpayers. I think there’s a fair deal to be had, but a deal that has to be born from facts, real math and local impact data.”

“It has to be transparently and fairly negotiated between the involved parties in good faith, and we’re standing by ready to engage in that process and move Alaska and that project forward,” he said. “But I can’t imagine that a 90% reduction in local revenues associated with oil and gas properties has any chance of moving forward.”

The bill also comes as Alaska legislative leaders have expressed concern about how quickly they can thoroughly consider a long-term plan providing fiscal support for the project, an effort that will include considering potential benefits and risks to the state and other complex questions.

The bill comes after a consultant for the Legislature, GaffneyCline, told the Legislative Budget and Audit Committee last month that legislative action will likely be needed on issues such as property taxes and “fiscal stability,” before the project developer can make a final decision on investment.

Lawmakers say they also plan to weigh whether GaffneyCline faces a conflict of interest, given that its parent company, Baker Hughes, has said it plans to provide key equipment and make a “strategic investment” in the project.

Dunleavy said lawmakers will “need to roll up (their) sleeves, get serious” and pass legislation involving the project.

Alaska LNG, among the largest U.S. infrastructure project proposals in modern history, also faces unanswered questions likely to complicate any efforts by the Legislature, including if the longtime current cost, estimated at $44 billion, is accurate.

The project’s developer, Glenfarne, has said an updated cost estimate will be completed this month. Worley, a global engineering firm, is doing the work.

The estimate won’t be released publicly, but it will be available to the state, Glenfarne said Friday.

“Worley’s work evaluating potential cost increases or reductions, for both pipeline and initial LNG export components, is on track to be completed by year-end as scheduled,” said Tim Fitzpatrick, a spokesperson for Glenfarne, in a prepared statement. “As a private developer, Glenfarne does not publish competitive cost information. We’re in commercial negotiations with contractors, suppliers, and LNG buyers, and cost information will remain confidential. Lenders and investors will be provided necessary and customary information.”

“The state of Alaska will have an investment opportunity and will have access to all necessary information,” Fitzpatrick said.

A 2-mill property tax

Project plans call for construction of an 800-mile pipeline delivering natural gas from the North Slope to Alaskans by 2029, an estimated $11 billion first phase.

In the second and more expensive phase, an export and gas-liquefaction facility would be built in Nikiski to ship much larger quantities of the gas overseas for use in Asian countries. The project has called for gas exports to begin in 2031.

[Previous coverage: Alaska LNG has caught a wave of high-level attention. Is it winning over its skeptics?]

Several similar projects to tap Alaska’s North Slope gas and send it to buyers have failed to be built over the decades.

But Alaska LNG stands out for making progress that others haven’t.

It recently completed the federal permitting process necessary for the project’s construction.

Large gas consumers in Asia, such as Tokyo Gas in Japan and POSCO International Corp. in South Korea, have signed preliminary gas-offtake agreements for more than half of Alaska LNG’s available gas volumes. Those are not binding commitments to buy the gas, though they could lead to final agreements.

“Glenfarne is rapidly progressing toward a final investment decision, as seen through our progress with numerous Asian commercial announcements and strategic partner agreements,” Fitzpatrick said. “We expect additional announcements in the next several weeks. Our overall project schedule, including completing the pipeline in 2028 and delivering first gas to Alaskans in 2029 has not changed.”

Dunleavy on Friday said his property tax bill will not be lengthy.

It’s the only bill he plans to introduce dealing with Alaska LNG, given that early legislation involving the project a decade ago established a strong foundation, he said.

“I’m going to introduce one bill on the gas line, because that’s really the only thing that’s really something worth putting in,” Dunleavy said. “Meaning the bills that enable the gas line that were passed in ’14 and ’15 had everything in there.”

A 2-mill rate would generate $100 million in the project’s first year, if it’s assessed at $50 billion, and lesser amounts as the project’s value depreciates over time.

That is below the $1 billion the project would generate at that value under the state’s 20-mill, or 2%, property tax rate.

At 2 mills, the income represents more income than the “zero” the state will get if the project is not built, Dunleavy said.

“We will still get royalty, we will still get severance taxes,” he said, referring to taxes and royalties from gas production.

Alaska LNG would also create thousands of jobs and lead to lower energy costs, he said.

The administration also plans to hire a “third party to examine any and all methods by which the municipalities and the state could capture revenue, meaning other types of taxes, PILTs, fractional ownership, other types of co-ownership in the pipeline,” he said, using PILT to refer to payments in lieu of taxes.

That co-ownership, 25% of which was reserved by the state’s gas line corporation, could potentially include municipalities, the state, corporations or individuals, he said.

“There are no other bills that we are contemplating, because the structure was put together really well by the Legislature back when the (original) bills were passed,” he said.

‘A jaw-dropping reduction’

The property tax at its current rate could add 9% to the project’s cost to deliver gas, GaffneyCline told the Legislative Budget and Audit Committee last month.

Fitzpatrick, with Glenfarne, said GaffneyCline and other experts have “identified Alaska’s high oil and gas property tax as an impediment to project development for more than a decade.”

“Glenfarne is already moving this project forward in advance of a formal FID (final investment decision) and will continue to work with the Legislature as we approach FID,” Fitzpatrick said in the prepared statement. “A final resolution to this longstanding problem will help Alaskans get lower cost energy as quickly as possible.”

The governor outlined his plans for the proposal in a private meeting with legislative leaders Thursday, the same day he presented his budget draft that called for spending more than $1.8 billion from savings to cover costs in the current and coming fiscal years.

Senate Majority Leader Cathy Giessel, R-Anchorage, said in an interview that the property tax proposal will be very contentious because it will have a significant impact on the state and local communities.

“That is a jaw-dropping reduction in a property tax,” Giessel said. “I know that it will affect the state, but it certainly will affect the municipalities and boroughs that the pipeline will go through. That’s a huge give on the part of the state to make this otherwise astronomical gas pipeline affordable and economic to even do.”

Giessel also said major questions need to be answered by the project developer and lawmakers.

For example, she asked, if North Slope oil producers provide gas for the project, will they be able to deduct expenses associated with that effort from the oil production taxes they pay the state?

“We need to refine the gas lease expenditure deductions and how that impacts oil,” she said.

Other concerns include preventing large cost overruns such as those experienced for the 800-mile trans-Alaska pipeline that began moving North Slope oil to market in 1977, she said.

The Legislature will be hard-pressed to make all the necessary changes this session, in part because Dunleavy provided a budget that will take up much of the discussion, she said.

“The timeline for any deliberation over our oil and gas tax structure typically has taken several years of work,” Giessel said Friday. “We’re now in the second session of a Legislature in an election year, and we have been now handed, yesterday, an incredibly irresponsible budget. We’re going to have to, frankly, put it to the side and write a budget, because this governor did not put the work in to actually do that. I don’t see how we possibly get any kind of tax structure on gas resolved before the middle of May.”

House Speaker Bryce Edgmon, an independent from Dillingham, said the House will look at the issues closely and will need to hire its own third-party consultants.

Setting a long-term property tax rate for the project is “inherently a challenging issue,” he said.

“But we will certainly do our part in terms of considering it,” he said. “Whether it can be prosecuted in a single session, that’s a whole different matter.”

Sen. Elvi Gray-Jackson, D-Anchorage, the chair of the Legislative Budget and Audit Committee, said she’s “looking forward” to seeing the governor’s bill.

“We’ll just take one step at a time,” she said. “Glenfarne claims they’re going to have a final investment decision in early 2026. We’ll see.”

Gray-Jackson said in a recent opinion article that she directed GaffneyCline to provide a report on key issues involving the Alaska LNG project. The report was pubicly released Monday.

Dunleavy said lawmakers can find the time to properly deal with the issue during a 120-day session and reach agreement on a complicated subject, like lawmakers do in other states.

The governor said that if the Legislature focuses on this bill over trivial bills, “such as recognition of tall people’s week or, you know, some of the bills that we do down there, we’ll get some substantial things done just like they do in other states in much less time.”

“We may have grown accustomed over the years, in Alaska in the Legislature, that just about everything is a hard, almost impossible lift,” he said. “But when we look at what they’re doing across the country, we should not be fretting over anything. We should be eager to get to work, roll up our sleeves and get some fantastic legislation done that will be (a) game changer for the state of Alaska.”

Borough mayors raise concerns

Mayors with two boroughs that would encompass Alaska LNG infrastructure, if the project is built, said they were concerned that the governor has moved forward with a specific idea for the property tax without input from the boroughs.

The governor met with those affected boroughs in October, but did not provide specific details of any proposed strategies regarding Alaska LNG, such as the 2-mill property tax, they said.

Micciche, mayor of the Kenai Peninsula Borough where the gas-liquefaction and export facility would be built, said the borough wants to see the gas line project built.

But the borough wants to make sure it can break even under a project that could create additional requirements in the borough for housing, roads, emergency services and other costs, he said.

“I look forward to those discussions so that we can lay out what the actual impact will be and discuss how our costs will be covered,” Micciche said.

Grier Hopkins, mayor of the Fairbanks North Star Borough, said one of the borough’s top priorities is seeing the gas line built.

But the borough needs to make sure the gas it provides is affordable to support the local economy, and it needs time to study the issue.

“I’d be happy to work with the governor and the other municipalities to find an agreement, but he needs to sit down and work with us,” he said. “I hope we can work together and something is not unilaterally moved forward before they can talk to us.”

Josiah Patkotak, mayor of the North Slope Borough where the project would start, declined to comment at this time, a spokesperson said.