Gas Pipeline Testimony of North Slope Borough Mayor, Charlotte Brower, Delivered Yesterday (March 6, 2014) To The Alaska State Senate Finance Committee Regarding SB 138.
Good morning Co-chairman Kelly, Co-chairman Meyer, and Senators.
My name is Charlotte Brower (NGP Photo). I am honored to be the Mayor of the North Slope Borough, the wife of a whaling captain, and am blessed with six children and twenty-five grandchildren.
Thank you for the opportunity to speak on SB138, a bill that authorizes the State of Alaska to move forward on developing a natural gas pipeline from the North Slope to tidewater.
Today I would like to talk about some of the concerns and interests of the North Slope Borough regarding SB 138 and the Heads of Agreement, which is a separate document that outlines the guiding principles of the Alaska LNG Project. I’m also here to offer some suggestions on how those concerns could be addressed by this committee, the Legislature, the Governor, and his Administration.
Before we talk about concerns, its important that say ‘Thank You’ to our Good Lord for the opportunity to be having this discussion on how to build a 40 to 50 billion-dollar project to develop our natural gas. How many other legislators or mayors would love to trade places with us right now?
The Alaska LNG Project envisions a 20 to 25 percent ownership by the State of Alaska. This requires the Legislature to evaluate complicated policy decisions and risks and costs on a level equal with decisions made by Fortune 500 companies. Please let me take a moment to acknowledge our appreciation for your efforts on behalf of our residents. You are truly deciding the future of our state, and on behalf of the North Slope Borough, I commend you. Quyanaqpak.
As Alaskans, we’ve learned from the past that large projects like this can set a positive course for our future. But we also know that in order to provide the maximum possible benefits, we have to be prepared for the impacts. For example, the Trans Alaska Oil Pipeline has provided billions of dollars of revenue and jobs, but we also learned lessons about demands for public services to deal with social services, job training, infrastructure, public safety, and education.
That brings me to the points that should be addressed in Senate Bill 138 and the Heads of Agreement document before this committee.
The Heads of Agreement has language in Article 9.3 that states the “Parties” intend for the project’s fiscal terms to be included in project-enabling contracts. Subject to “consultation” with local governments, the Administration will establish payments in lieu of property tax (PILT), which are to be based on a unit rate per throughput basis. In other words, the payment is calculated as cents per thousand cubic feet of natural gas.
The reason for concern is that the process for “consultation” is not defined. We see that the process for enabling contracts is an “up or down” ratification vote by the Legislature after the Administration submits them to you for approval. If the local taxing authority of municipal governments is going to be modified to provide fiscal certainty, we must be part of the process.
Let me turn now to the language in Senate Bill 138.
The current language in SB138 addresses the taxing authority of local municipal governments in three different sections.
First, the Senate Resources Committee added Legislative Intent language in Section 1 that the interests of local governmental entities “must be considered in contract negotiations to protect the financial and other interests” of the local governmental entities. The addition of this language is recognized and appreciated, but it does not have the force of law, and does not go far enough.
Second, in Section 8 of the bill, the state-created subsidiary is given the legal provisions created in current law for the Alaska Gasline Development Corporation, known as “AGDC”. This includes the language in Alaska Statute 31.25.260, which exempts AGDC from municipal taxes for any property owned by AGDC. In addition, this section of law further exempts taxable property for any joint venture or partnership with AGDC during construction of the pipeline.
This creates confusion because the new subsidiary for the large-diameter project is given the all the benefits provided to AGDC, but they are two completely separate and distinct projects. In the case of the Alaska LNG Project in SB138, there is a very large project that proposes to have significant state ownership. This was not the model that was envisioned when the Legislature discussed the formation of AGDC last year during the hearings on House Bill 4.
Third, the Commissioners of the Departments of Natural Resources and Revenue are provided authority to negotiate enabling contracts that must be ratified by the Legislature. Based on the language in the HOA, these enabling contracts will be used to establish a PILT system and also establish a series of impact payments during project construction.
I am here today to request your consideration for making amendments to SB138 and other changes that will protect the interests of local governments. Before discussing those amendments, I would like to provide some background.
Less than three weeks ago I was fortunate enough to offer testimony to the House Resources Committee in Juneau to support of HJR26. HJR26 is a resolution calling upon the United States Congress to pass legislation that establish a revenue sharing program from the proceeds of oil and gas development on the outer continental shelf off our shores. Earlier this week, HJR26 passed the Senate on a vote of 17 – 0. Thank you for your vote. By working together as Alaskans, we are sending a message for receiving a fair and equitable distribution of revenues that come from energy development off our shores.
It was our combined message as state and local governments that we will need resources to keep up with infrastructure requirements, expand emergency response and search and rescue capabilities, and work to maintain healthy communities and a healthy ecosystem.
When it comes to dealing with the impacts of oil and gas development, the basic discussion between offshore and onshore is not really that much different. As the local government responsible for providing basic essential services, the North Slope Borough is there to help provide for cost of schools, emergency response, health and social services, and public safety.
Like most other municipal governments, the North Slope Borough relies upon our authority to levy a property tax in order to generate the revenue to provide these public services. That is why any discussion to exempt property taxes from a project of this magnitude gives me cause for concern.
This is not the first time we’ve discussed the development of a natural gas pipeline and the issue of fiscal stability for the project. And I continue to believe that municipal taxes are not the issue that makes or breaks the margin on a project that could exceed $50 billion.
On behalf of the North Slope Borough, I would like to request your consideration for the following amendments to Senate Bill 138:
1) The newly created subsidiary should not be provided the tax exemptions provided to AGDC for the small in-state project. In particular, the tax exemptions under AS 31.25.260 should not apply to the large-diameter project in SB138.
2) Let’s explore ways for municipalities to participate in the project. For the all the reasons that the project benefits from participation by the State of Alaska, perhaps many of the concerns of municipalities could be addressed in the same manner. For example, perhaps municipal governments could access revenues and get access to natural gas by having an ownership stake in a portion of the project.
3) The Governor has authority to issue Administrative Orders that could establish an advisory working group of municipal officials, Administration officials, industry participants, and others. Perhaps this approach could be explored to get conversations started to resolve some of these concerns.
No one wants to see a natural gas pipeline more than myself. I see the opportunity for my grandchildren to have good jobs, and I also want to see access to affordable energy for my grandchildren’s children.
In order to get jobs and access to affordable energy, our villages will need good schools, housing, and other basic services in order to take advantage of the opportunities. And for that reason, I am here today to speak up for the ability of our municipal government to have the authority to meet those needs.
Quyanaqpak
Leave A Comment