Report: Alaska LNG project could cost Municipality of Anchorage millions

Anchorage Mayor Suzanne LaFrance told the state House Finance Committee on Monday that the Alaska LNG megaproject could cost the municipality up to $173 million over nine years because of the city’s current tax structure, citing a new report.

The project’s 800-mile pipeline, which would move gas from the North Slope to Southcentral Alaska, would not pass through Anchorage. As a result, the city would not receive direct property tax or gas-volume tax from the project, she said.

But thousands of workers associated with construction and related activity would be based in Anchorage, she said.

“Our community will serve as a logistical, operational, transportation, and administrative hub throughout the life of the project,” she said. “That will bring important economic benefits, but it will also create real demands on local government services.”

“Since we rely on property taxes, we don’t get new tax revenues from an influx of people until new homes and commercial properties are built and added to our tax rolls,” she said. “That takes years, but there will be immediate pressure on public safety, emergency response, roads, schools, and other municipal services.”

Gov. Mike Dunleavy called the Legislature into special session to weigh his proposal to cut property taxes to support the LNG line and replace them with a much smaller tax based on gas volume moving through the project.

Proponents say it would deliver long-term natural gas to Alaska, lowering energy costs, and after exports begin, it could provide billions of dollars in revenue for three decades even with the tax cut.

Skeptics fear that too large a rate cut could saddle municipalities and the state with high, uncovered costs to deal with the influx of workers and their demand on roads, police, housing and hospitals.

LaFrance said the municipality supports a community impact fund that would provide some revenue to Anchorage and other communities to help offset costs, she told the House Finance Committee. That idea, and a revenue sharing measure, are currently included in an amended version of the governor’s bill before the committee.

The concerns come as the LaFrance administration takes aggressive steps to build thousands of new homes in the coming years to address a tight housing market in Anchorage.

The report, prepared for the Anchorage Community Development Authority by economist Jonathan King with Halcyon Consulting, found that the project will “create a significant structural fiscal gap for the municipality.”

Lacking a sales tax that would provide immediate revenue as workers arrive, the city would instead lose large amounts of money during construction even if new housing is built, the report says.

But even in the most optimistic scenario, with new housing built in Anchorage for 100% of the workers, the city “will face a structural deficit” several years into the project, the report says.

With no new housing built for the workers, the city will face a cumulative deficit of $173 million over nine years, the report says. If new housing is built for all the workers, the city faces a nine-year deficit of $23 million.

“Avoiding a deficit likely means seeking new tax revenue outside the tax limit calculation, modifying the tax limit calculation, or receiving project impact payments from the state or project owners,” the report says.

Rep. Jeremy Bynum, a Ketchikan Republican, said that there would also be positive long-term effects, including from low energy costs that can support the economy and new industries, and population growth that can shore up dwindling school enrollment.

Nolan Klouda, policy director for LaFrance, said that once exports to foreign countries begin, the project’s gas price can be very affordable for Anchorage and other communities.

“We’re always very concerned about anything that could cause the cost of living to go up,” Klouda said. “So I think that having low-cost heating and power from that natural gas is really critical for our economy.”