Communities learn how much money they might receive for hosting LNG line

Municipal leaders from across the state came to a preliminary agreement with partners in the Alaska LNG Project on local payouts last week.

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The proposed pipeline route for the Alaska LNG Project, a consortium of oil companies (Image courtesy of the Alaska LNG Project).
The proposed pipeline route for the Alaska LNG Project, a consortium of oil companies (Image courtesy of the Alaska LNG Project).

The project will make $800 million available to communities facing impacts from the 800-mile long LNG pipeline, with billions more slated for future tax payments. But how much each community will be entitled to is still up in the air.

For more than a year, a group called the Municipal Advisory Gas Project Review Board has been working to get to these numbers; $800 million on the front end of the AK LNG Project to pay for things like road expansions and other expensive upgrades, and 16.5 billion dollars for taxes over the life of the project. Kenai Peninsula Borough Mayor Mike Navarre is one of many city and borough mayors on the Review Board.

“I think they’re fair numbers,” Navarre said. “A lot of it still depends on how it will be allocated among the different communities and the state.”

We could use up this space simply entertaining all the options the legislature has for allocating that money, but that still wouldn’t get us very far. Governor Bill Walker has proposed the state take a 25 percent share of the project, buying out TransCanada. So who pays for what under that scenario?

“If the state is a part owner of the project, is that portion of it exempted from taxation and if so, does that reduce those numbers by 25 percent? And if so, does that come out of the state’s share, the municipalities’ share or both?”

“And when there’s a lot of money on the table and no one else has much money because of declining oil prices, there will be lively debate over who gets how much of that pot of money,” said Larry Persily, special assistant to the mayor on oil and gas.

He used to work for the federal government keeping tabs on big oil and gas projects in the state and now he’s doing the same thing for the Kenai Peninsula Borough. He says all of these discussions, taking place years before a decision will even be made about whether or not to build an in-state gasline, all stem from arguments of the past.

“This is intended to avoid the fights that have gone all the way to the state Supreme Court, multiple times, over what is the value of the Trans-Alaska Pipeline and everything attached to it,” Persily said.

And that’s why we’ve seen an opening bid, so to speak, of $16.5 billion for property taxes. Actually, that’s a payment in lieu of taxes, or a PILT. If you took all of the pipe and the buildings and the equipment and the land needed to build and maintain an 800 mile natural gas pipeline and taxed it like  regular property, the project would simply be too expensive. So $16.5 billion is what the negotiating parties have agreed to as an alternative.

“So there will be a formula, based on production, that will be paid and distributed between the municipalities, such as the Kenai Peninsula Borough where the (LNG) plant is going to be located and the North Slope Borough, Fairbanks, Mat-Su Borough, Denali Borough and the state and that will continue for the life of the project,” Persily said. “What hasn’t been decided is…how it is going to be shared between the state and the boroughs.”

There is clearly a lot more negotiation that will take place before we really know how much money communities can expect out of the project, and all of this is before the project sponsors have finished their report on the socio-economic costs. That means schools, hospitals, police and other services that might be needed during construction. That could also mean even more money in local coffers. If the project gets the greenlight. That decision isn’t expected until sometime in 2018.