Legislature doesn't see need for tax breaks to build gas pipeline
JUNEAU -- Leading Democrats and Republicans oppose state tax and royalty concessions for developers of a natural gas pipeline, disagreeing with Gov. Tony Knowles that such a break might be needed to make the $10 billion project viable.
But that might have been the only broad point of agreement between the parties as they reacted to Knowles’ State of the State address.
Knowles chose the Jan. 8 opening of the 22nd legislative session to highlight the natural gas issue, and he made it a major theme of his annual address Jan. 10.
The governor earned applause from legislators by saying: "I believe Alaskans can be on the working end of a shovel building a natural gas pipeline within two years. After two decades of false starts and broken dreams, the economic and political stars are finally aligned in our favor. Natural gas is the fuel of the 21st century."
Among his requests to the Legislature, Knowles wants authority to negotiate with North Slope producers on a revenue package that might defer some state royalties and taxes in order to "backload" project costs and ensure viability of the project. The Legislature would have to approve such a package, said Revenue Commissioner Wilson Condon. Commercialization of the gas eventually is expected to yield about $200 million to $400 million in state revenues annually.
Although natural gas prices have skyrocketed recently, Knowles said Jan. 8 that a tax break is still needed for the natural gas pipeline, which he called marginal. North Slope producers haven’t yet requested a negotiated deal on state revenues, but the governor said there is need to lower upfront costs due to the length of time for construction and the likelihood of lower prices over the long term.
While there is broad agreement on the desirability of the project, legislators are saying they doubt that pipeline developers would need the additional incentive of a break on state royalties and taxes. There also was discontent in the Legislature a year ago about the tentative deal Knowles brokered with BP Amoco concerning its merger with Atlantic Richfield Co., which was seen as less favorable than the arrangement ultimately approved by the Federal Trade Commission.
Senate President Rick Halford, a Chugiak Republican, said that if the pipeline to the Lower 48 is otherwise feasible, state tax breaks wouldn’t make a difference and would amount to giveaways. House Finance Co-Chairman Eldon Mulder, an Anchorage Republican, said he might be open to deferring some state revenue, but said the Republican position is "don’t sell the farm or give it away."
"I would prefer for there not to be inducements," said Senate Minority Leader Johnny Ellis, an Anchorage Democrat.