Fairbanks wants bigger slice of $15.7B PILT pie
Emotions can run high when $15.7 billion is up for grabs.
Decorum held Jan. 15 as mayors of the boroughs along the proposed Alaska LNG Project corridor debated the appropriate allocation of $15.7 billion the state and local governments could get in-lieu of traditional property tax revenue on the project’s infrastructure. However, the Municipal Advisory Gas Project Review Board meeting discussion certainly had an undercurrent of tension.
Much of the back-and-forth centered on parsing out what is fair, particularly for the Fairbanks North Star Borough.
While it’s widely assumed the Interior local government area will act as a hub for much of the project construction and operating activity, the current route of the 800-mile pipeline would cross only two miles of FNSB territory. That would leave the borough with a 0.2 percent allocation for the pipeline portion of the $15.7 billion payment in-lieu of property tax, or PILT, total.
FNSB Mayor Karl Kassel has made it clear that he would not accept a scenario in which the borough received a PILT allocation based solely on infrastructure value within local government boundaries.
Revenue Commissioner and board chair Randy Hoffbeck offered an allocation matrix at a December meeting that would split the PILT money based on infrastructure valuation, while leaving a small portion for distribution to local governments statewide based on population.
Hoffbeck noted at the time that the model was intended to be a starting point for the discussion — a visual to outline the complex relationship between PILT takes by the State of Alaska, locales within the AK LNG Project corridor and the rest of Alaska.
Kassel said in an interview that the Revenue Department’s draft is still the basis for discussion, but added that even as there is “somewhat of a general consensus” the final allocation will be something different, no one, including himself, has come up with an agreeable solution.
The $15.7 billion PILT figure was negotiated by the state with the AK LNG Project partners as a sum to be paid over the initial 25-year life of the project. The yearly payments, starting about 2025, would be tied in part to the natural gas throughput of the project, with payments starting at $556 million and escalating to $706 million in year 25. If the project exceeds its initial life as expected and processes more gas, the final PILT sum could increase.
Under the Revenue Department model — based heavily on allocating in-area asset valuation similar to a property tax — the Fairbanks North Star Borough would get just $75,600 per year for its two miles of pipeline.
The Fairbanks North Star Borough will feel major impacts from the project despite holding only two miles of pipeline, Kassel emphasized.
“We’re the supply depot; we’re the hub of the network,” he said in an interview.
The Trans-Alaska Pipeline System, or TAPS, has given Fairbanks a very good idea as to what the community can expect with the gasline. Kassel said the borough’s payroll increased 75 percent during TAPS construction. He said he doesn’t expect growth on that scale given the state has matured greatly since the mid-1970s, but expecting growth up to 20 percent is not unreasonable, according to Kassel.
He said at the meeting he expects everyone to fight for their communities, but Fairbanks “would rather not see the pipeline filled with the (Revenue Department’s) structure.”
Regardless of the model, the State of Alaska will likely take a significant share of the PILT because 304 miles of the pipeline runs through unincorporated areas of the state north and west of Fairbanks and the state, as a 25 percent owner of the project, will presumably recoup its portion of the PILT. Without the state’s quarter share, about $11.8 billion would actually be split between the state and local governments.
Matanuska-Susitna Borough Mayor Vern Halter proposed a model allocating 50 percent of the $15.7 billion PILT to the state, including the 25 percent state tax payback; 20 percent to areas with AK LNG Project infrastructure; and 30 percent to local governments statewide based on population each year.
The 20 percent share for boroughs and the state with project assets would be weighted, with 70 percent as a ratio of asset value and 30 percent based on population.
Kassel said the model has merit, but shouldn’t distribute facility asset values from the North Slope and the Kenai Peninsula boroughs because the gas treatment plant to the north and the massive LNG plant at the end of the pipe are wholly located within those areas. The ratio split should focus on the pipeline asset allocation to acknowledge impacts to Fairbanks, he said.
Kassel suggested a 50-50 split of the pipeline portion of the PILT based on the location of assets and the population of the jurisdictions within the pipeline corridor.
Hoffbeck noted that allocating based on population within the project corridor is “getting a long way from property tax,” but said it is up to the larger board to decide its recommendation.
Halter said he doesn’t want the ultimate allocation “over-weighted to infrastructure,” which the Revenue model is, he contends.
Kenai Peninsula Borough Mayor Mike Navarre said the idea that a PILT is not tied to property taxes simply isn’t accurate. The $25 billion LNG plant expected for Nikiski on the Peninsula is projected to bring in massive amounts of tax revenue for the Navarre’s borough even if it is taxed at a lower rate than current borough statute, as the negotiated PILT calls for.
Navarre commented at the meeting and Kassel said in an interview that regardless of what the board recommends to Gov. Bill Walker, the Legislature makes the final decision.
“I think it’s important for us to be involved and give it a best-faith effort to come up with the best recommendation we can,” Kassel said. “Where it goes from there — we know it goes into the sausage maker of the legislators and what comes out the other end — who knows?”