Lawmakers: No to pipeline tax breaks

Posted: Thursday, January 11, 2001

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 Wednesday night and this morning to Knowles' State of the State address.

Knowles chose Monday's opening of the 22nd legislative session to highlight the natural gas issue, and he made it a major theme of his annual address Wednesday.

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 Monday 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 this week 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, 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.

There was less bipartisanship by legislators on other issues.

Republicans, while praising the warm and positive tone of Knowles speech, said he's really proposing $200 million in increased general fund spending, not the $145 million he says his package is worth.

But there were no specifics on what cuts the Republican majority might be considering. Democrats who attended the Republican news conference leaped on the vagueness.

"What I heard tonight was the uncertainty of not having a particular direction from the Republicans, and that hopefully will cause them to be open-minded to the governor's proposals," said House Minority Leader Ethan Berkowitz of Anchorage.





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