Knowles wants gas-line payback

House panel snubs governor, approves measure offering $760 million to developers

Posted: Sunday, May 05, 2002

Gov. Tony Knowles came out strongly Saturday for adding a payback provision to a natural gas bill offering a $760 million tax break for pipeline developers.

But the House Rules Committee, in a complete rebuke to Knowles, later passed the bill to the House floor in a 52-second meeting during which there was no discussion of the governor's new amendment.

The committee quickly adopted a new version of the bill, HB 519, that contained a compromise with Knowles by extending the state and local property-tax break for just one year after the beginning of pipeline operations, rather than two. But the governor's statement Saturday on payback caught Rules Chairman Pete Kott by surprise.

"I thought we had a deal there," Kott, an Eagle River Republican, told reporters after the meeting. "It's obvious something happened overnight. ... Obviously, I was misled."

On Tuesday, Natural Resources Commissioner Pat Pourchot wrote to Kott saying the bill "would be acceptable" with five specific changes, including a sunset of 2008, rather than 2012, and a stronger statement regarding the use of Alaska workers and businesses. The letter didn't request a payback provision.

Knowles, noting that the bill will be on the House floor Monday, a mere three weeks after being introduced, said the administration rolled out its proposed amendments in two stages because of other pressing end-of-session business.

House Minority Leader Ethan Berkowitz, who missed the Rules Committee meeting by arriving just a few minutes late, said the governor isn't to blame for the miscommunication.

"I don't think there was much attempt to accept any modifications," said Berkowitz, an Anchorage Democrat. But he said he welcomes the contrast with Republicans who are pushing huge tax breaks for big corporations. "On the politics, I'm quite happy for this bill to survive."

Knowles said more modest incentives should be offered to companies that would build a pipeline from the North Slope to Alberta, Canada.

"A successful partnership depends on two things: the right kind of incentives for industry, and fairness to all Alaskans," he said. "So when Alaska assumes the risk by foregoing property taxes during project construction, Alaskans deserve to share in that bright future with a payback of deferred taxes."

The governor noted that the energy bill pending in Congress would require pipeline developers to pay back federal tax breaks when gas prices are high. "What's good for the feds should be good for the state of Alaska."

With Knowles' proposal limiting a property-tax deferral to the construction phase, developers would get an incentive of $385 million, or about half the amount that would be permanently exempted under the House bill.

To get the money back, Knowles proposes a 6-cent severance surcharge that would be levied when gas prices hit a particular price. It would take about five years with prices above the base to recoup the $385 million, and the state probably wouldn't recover all of its foregone taxes in inflation-adjusted dollars, Knowles said.

In lieu of the existing 20-mill property tax, the governor's amendment would substitute a temporary 3-mill tax during construction. That would raise a total of about $68 million that would provide emergency assistance for gas line-related impacts to both state and local government.

Knowles also has proposed that the Alaska Railroad issue up to $17 billion in bonds for the gas line, which could shave $1 billion off the project cost through a federal tax exemption. That's included in the House bill.

The proposed federal and state incentives still aren't enough to make the project economically viable, officials of the three major North Slope producers told legislators recently.

Sen. John Torgerson, a Kasilof Republican, challenged that, saying he believes there is at least a potential 15 percent rate of return on investment in the project.

Kott said that statements such as Torgerson's are complicating things in Washington, D.C., where a House-Senate conference committee is negotiating final details of the gas line incentives.

"Absent that piece of legislation, there's not going to be a pipeline," Kott said.

Bill McAllister can be reached at

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