HomeMy WebLinkAboutResolution No. 2004-57Suggested by:
CITY OF KENAI
RESOLUTION NO. 2004-57
Council Member Ross
A RESOLUTION OF THE COUNCIL OF THE CITY OF KENAI, ALASKA, SUPPORTING
RESOLUTIONS 2004-1 THROUGH 2004-8 ADOPTED BY THE MUNICIPAL ADVISORY
GROUP IN THEIR ADVISORY ROLE TO THE STATE OF ALASKA UNDER THE
STRANDED GAS ACT.
WHEREAS, the Stranded Gas Development Act required a Municipal Advisory Group
(MAG) to be established to advise the State of Alaska Department of Revenue; and,
WHEREAS, MAG participated in the development of a Stranded Gas Development Act
Municipal Impact Analysis as a basis for the resolutions prepared in their advisory role
to the State; and,
WHEREAS, the City of Kenai has representation on MAG and an opportunity to
address issues in the resolutions cited as they were being developed; and,
WHEREAS, MAG has recommended, under conditions set forth in MAG Resolution
2004-1, Payment in Lieu of Property Taxes (PILT) is an acceptable alternative; and,
WHEREAS, MAG has recommended under conditions set forth in MAG Resolution
2004-2, that PILT to revenue-impacted communities should not be applied to sales
and use taxes of the municipalities, nor should it be applied to property that under
current tax law, would be taxable under AS 29.45; and,
WHEREAS, MAG has recommended that, under conditions set forth in MAG Resolution
2004-3, any Alaska natural gas pipeline project should provide takeoff points for
provision of gas to supply in-state needs, and further, the State of Alaska should retain
the right to take its royalty share of natural gas in kind; and,
WHEREAS, MAG has recommended, under conditions set forth in MAG Resolution
2004-4, a PILT, based on throughput and indexed for inflation is preferable to other
methods of value determination, distribution of PILT should be made directly to
affected municipalities and not be subject to legislative appropriation, and distribution
should be proportionally based on respective municipal mill rates; and,
WHEREAS, MAG has recommended, under conditions set forth in MAG Resolution
2204-5, a PILT must fund economic impacts to affected communities as a result of
pipeline construction activities, and maximized training and hire of an Alaska
workforce may mitigate impacts on existing municipal services; and,
WHEREAS, MAG has recommended, under conditions set forth in MAG Resolution
2004-6, training and hiring of an Alaskan workforce would be beneficial to the
Communities of Alaska and the companies involved in the construction, operation and
maintenance of an Alaska Natural Gas Pipeline; and,
RESOLUTION NO. 2004~57
Page 2 of 2
WHEREAS, MAG has recommended, under conditions set forth in MAG Resolution
2004-7, PILT received from some types of economic impacts not be terminated in an
untimely manner in the event of a pipeline construction interruption; and,
WHEREAS, MAG has recommended, under conditions set forth in MAG Resolution
2004-8, the State of Alaska require provisions in a negotiated contract that would allow
for capacity expansion to accommodate future exploration and production of natural
gas.
NOW, THEREFORE, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF KENAI,
ALASKA, that it supports the recommendations to the State of Alaska made by the
Municipal Advisory Group in Resolutions 2004-1 through 8, which are attached and
incorporated in this resolution of the City of Kenai.
PASSED BY THE COUNCIL OF THE CITY OF KENAI, ALASKA, this third day of
PAT PORTER, MAYOR
ATTEST:
Carol L. Freas, City Clerk
clf
Municipal Advisory Group Resolution 2004-01
Whereas the intent of the Stranded Gas Development Act is to provide a mechanism for
achieving the fiscal certainty that potential project sponsors indicate they need before proceeding
with the large investment needed to bring Alaska North Slope natural gas to market;
Whereas the Stranded Gas Development Act allows the state to contract away municipalities'
ability to collect property tax under AS 43.56, municipal sales and use tax, municipal special
assessments, a comparable tax or levy imposed by the state or a municipality, or other state or
municipal taxes or categories of taxes identified by the commissioner;
Whereas the Stranded Gas Development Act requires a Municipal Advisory Group be
established to provide advice to the State of Alaska Department of Revenue;
Whereas the State of Alaska has received and accepted an application from a qualified sponsor
group under the Stranded Gas Development Act, is considering other applications, and is
reviewing other proposals for the development of Alaska North Slope Gas;
Whereas the Stranded Gas Development Act offers sponsors of stranded gas projects an
opportunity to negotiate fiscal contracts with the State of Alaska, thereby potentially increasing
the certainty for calculating taxes and royalties over the life of the project and thus increasing the
competitiveness of the project and reducing fiscal risks;
Whereas under the Stranded Gas Development Act, the Commissioner of Revenue may negotiate
terms for inclusion in a proposed contract with a qualified sponsor providing for periodic
payment in lieu of one or more taxes that otherwise would be imposed by the state or a
municipality;
Whereas the Stranded Gas Development Act requires a qualified sponsor to provide a detailed
description of options to mitigate the increased demand for public services and other negative
effects caused by the project;
Whereas the Stranded Gas Development Act requires applicants to provide a description of the
methods and terms under which the applicant is prepared to make gas available to meet the
reasonably foreseeable demand in the state for gas within the economic proximity of the project
during the term of the proposed contract;
Whereas the State of Alaska has established a Municipal Advisory Group consisting of
representatives of revenue-affected municipalities, economically-affected municipalities, and the
unorganized borough;
Whereas the purpose of the Municipal Advisory Group is to make recommendations to the State
on an acceptable revenue stream and structure to local governments in lieu of taxes and for the
commissioner to report periodically on the development of the contract provisions that affect the
municipalities;
Whereas the Stranded Gas Development Act implies a payment in lieu of traditional municipal
taxes may be needed to make a gasline project viable;
Whereas another purpose of the Municipal Advisory Group is to assist the State of Alaska in
determining the social and economic impacts on municipalities of the construction and post-
construction of an Alaska gasline project, and the attendant costs of those impacts to
municipalities;
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Municipal Advisory Group Resolution 2004-1' Approved
Whereas a fixed line-wide payment in lieu of taxes may not allow for changing conditions within
a municipality or the state, such as those changes created by new voter approved bonds,
increased mill rates, and formation of new local governments;
Whereas it is incumbent upon municipal officials to communicate clearly to residents about
public revenues;
Whereas the Municipal Advisory Group desires the Alaska gasline project to maximize training
and hiring of workers and contractors from within the state, leading to enhanced workforce and
economic development;
Therefore be it resolved by the Municipal Advisory group that:
1. No reduction or deferral in municipal taxes is acceptable without appropriate justification
from the State of Alaska and the project sponsor;
2. The State of Alaska should weigh the cost benefit of a tax exemption with the difficulty of
administering an exemption from specific taxes;
3. The State of Alaska should devise a payment in lieu of taxes structure that provides certainty
for municipalities at least through the end of the stated contract period;
4. The State of Alaska should ensure the payment in lieu of taxes structure recognizes the loss
to present and future forms of local government of the opportunity to respond to changing
conditions through changing tax rates;
5. The State of Alaska should provide incentives to the successful applicant under the Stranded
Gas Development Act to ensure the training and hiring of Alaskans for the construction,
operations and maintenance of the gasline;
6. The State of Alaska should require that the successful applicant will include take-off points at
strategic locations along the pipeline to make gas available to meet the reasonably
foreseeable demand for in-state natural gaS use;
7. The State of Alaska should ensure there will be a fair tariff to the points of in-state takeoff of
gas;
8. The State of Alaska should ensure that affected municipalities' combined share of the
economic rent of the approved project should correlate with the revenue stream of the project
by negotiating that the present value of the aggregate amount of payment in lieu of taxes is
not less than the amount that would have been collected under AS 43.56, AS29.45 and 29.46.
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Municipal Advisory Group Resolution 2004-1' Approved
Page 2
Municipal Advisory Group Resolution 2004-02
A resolution outlining parameters for Payment in Lieu of Taxes to Municipalities:
A. Whereas thc Stranded Gas Development Act anticipates a negotiated contract between the
State of Alaska Department of Revenue and revenue impacted municipalities in lieu of
traditional property taxes under AS 43.56;
B. Whereas thc Municipal Advisory Group, established under thc auspices of thc SGDA, has
met regularly to discuss and review issues relating to revenue and socio-economic impacts of
a gaslin¢ on municipalities;
C. Whereas it is not thc intent of thc SGDA to exempt or modify property taxes currently being
assessed and collected under 43.56 but to modify thc shape of future property taxes to be
assessed and collected for thc Alaska Natural Gas Pipeline;
D. Whereas the definition of taxable property under 15 AAC 56.075 is confusing in terms of
defining dual use property for purposes of taxation under 43.56;
E. Whereas "stranded gas" defined in AS 43.82.900 means gas that is not being marketed due to
prevailing costs or price conditions, as determined by an economic analysis by thc
commissioner for a particular project;
F. Whereas real and personal property that is used or committed by contract or other agreement
for usc within this state primarily in the exploration for, production of, or pipeline
transportation of gas or unrefined oil, or for thc operations and maintenance of such facilities,
is taxed under AS 43.56 rather than under AS 29.45;
G. Whereas an exception to thc definition of taxable property under AS 43.56 is "for property
used solely for thc retail distribution or liquefaction of natural gas";
H. Whereas thc Municipal Advisory Group has not come to agreement on the shape, length or
allocation methodology of a Payment in Lieu of Taxes to revenue impacted communities;
I. Whereas thc Municipal Advisory Group has come to consensus on the general parameters in
which a PILT should be negotiated;
J. Whereas a number of factors argue against sales tax exemptions, including'
a. Complexity of administering sales tax exemptions;
b. Onus on vendors collecting sales taxes;
c. Difficulties of determining who is an exempt entity;
d. Thc determination of exempt items;
e. Competitive advantage/disadvantage based on entities exempted;
f. Cost/benefit of exemption - especially given per transaction caps;
g. Cost of sales taxes not material to the project;
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Municipal Advisory Group Resolution 2004-02' Approved
Be it therefore resolved that the Municipal Advisory Group recommends the following
parameters be utilized in future PILT negotiations:
1. No property that is taxed under AS29.45 or AS 43.56 prior to the start of construction of an
Alaska Natural Gas Pipeline should receive a tax deferral/exemption under a SGDA contract;
2. A contract developed under the SGDA should clarify the conditions under which dual use
facilities are to be taxed in order to protect municipalities' tax bases in existence prior to the
start of construction;
3. No tax exemption under the SGDA should apply to a gas pipeline or gas distribution
infrastructure in existence prior to the start of construction of an Alaska Natural Gas Pipeline.
4. No tax exemption under the SGDA for municipal sales and use taxes.
5. SGDA contract may include provisions to ensure sales taxes are not targeted to gas pipeline
construction and operations.
6. No exemption under SGDA contract for the Alaska Natural Gas Pipeline for property that
under current tax law would be taxable under AS 29.45.
7. SGDA contract may include provisions to ensure municipal severance taxes are not targeted
to gas pipeline construction.
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Municipal Advisory Group Resolution 2004-02: Approved
Municipal Advisory Group Resolution 2004-03
A resolution advising the State of Alaska to reinforce the requirements of the Stranded Gas
Development Act to make natural gas available to meet in-state demand:
A. Whereas the Stranded Gas Development Act requires applicants to describe methods and terms
under which the applicant is prepared to make gas available to meet the reasonably foreseeable
demand in Alaska within the economic proximity of the project;
B. Whereas the SGDA states that an element of determining if a project is qualified is whether it
is capable, subject to applicable commercial regulation and technical and economic
considerations, of making gas available to meet reasonably foreseeable demand in this state;
C. Whereas the Alaska Constitution requires natural resources to be developed for the benefit of
all Alaskans;
D. Whereas communities in Alaska desire affordable and clean energy from the gas pipeline;
E. Whereas affordable, clean energy is a component of economic development and quality of life
throughout the state;
F. Whereas a gas pipeline likely will transport large quantities of natural gas liquids under high
pressure, and any takeoff on the pipeline for local access to gas likely will be expensive and
may require facilities to remove the natural gas liquids, making the location of extraction of
NGLs important to Alaska communities;
G. Whereas the tariff established for gas transported to takeoff points within Alaska should be
calculated for the actual transportation costs to those points;
H. Whereas AS 38.35.120(a) and AS 42.05.711-42.06.370 may act to prohibit access to North
Slope natural gas by many or all communities in Alaska;
I. Whereas South Central Alaska has had access to an abundant supply of low-cost natural gas
from Cook Inlet Basin, which is forecasted to meet existing demand until approximately 2012;
J. Whereas Interior Alaska would benefit from having access to natural gas either for industrial
uses or distribution or for generating lower cost electricity;
K. Whereas Southeast Alaska communities are isolated and largely rural, and rely on importing
oil from lower 48 suppliers for most energy needs; and an alternative source of clean, efficient
and cost-effective energy offers a high likelihood of beneficial effect on economic
development and quality of life for residents of the Southeast region;
Be it therefore resolved:
1. The Municipal Advisory Group requests the State of Alaska to include the placement of
multiple, strategic takeoff points in the rural and urban areas of Interior, South Central and
Southeast Alaska as part of the construction project along the route of any natural gas pipeline
from Alaska's North Slope in its negotiations with successful applicants.
2. AS 38.35.120(a) and AS 42.05.711-42.06.370 should be amended to provide greater assurance
that communities in Alaska, to the greatest extent practicable, will have access to North Slope
natural gas from any trans-Alaska natural gas pipeline.
3. The State of Alaska should retain its fights to take the State's royalty share of natural gas in
kind in order to provide maximum access to natural gas to meet the future needs of the
communities, businesses and regions of Alaska.
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Municipal Advisory Group Resolution 2004-3' Approved
Municipal Advisory Group Resolution 2004-04
A Resolution Outlining the Parameters of a Revenue PILT Acceptable to Municipalities'
A. Whereas no reduction or deferral in municipal taxes is acceptable without appropriate
justification from the State of Alaska and the project sponsor;
B. Whereas a payment in lieu of taxes structure should provide certainty for
municipalities;
C. Whereas the State of Alaska should ensure any payment in lieu of taxes recognizes
the loss to present and future forms of local government of the opportunity to respond
to changing conditions through changing tax rates;
D. Whereas a payment in lieu of taxes does not mean a reduction in taxes;
E. Whereas the State of Alaska should ensure that affected municipalities' combined
share of the economic rent of the approved project should correlate with the revenue
stream of the project by negotiating that the present value of the aggregate amount of
payment in lieu of taxes is not less than the amount that would have been collected
under AS 43.56, AS 29.45 and AS 29.46;
F. Whereas project sponsors have indicated the existing tax structure front-loads their
expenses and property taxes are due before a revenue stream is in place;
G. Whereas revenue affected municipalities want to avoid the drastic decrease in
revenues that would be possible at the end of the contract term if valuation methods
changed and the Alaska Natural Gas Pipeline continued;
Be it therefore resolved that:
1. In the event that a payment in lieu of taxes is found to be acceptable to the
municipalities, a PILT based on the throughput of the proposed natural gas pipeline
indexed * for inflation is preferable to other methods.
o
,
The throughput rate per mcf established under the Stranded Gas Development Act for
the PILT should approximate taxes that would have been collected under AS 43.56.
The negotiated PILT should include a continuation clause in the original contract for
the Alaska Department of Revenue to have the option to extend the throughput
method of payment in lieu of taxes through the life of the project, rather than the life
of the contract.
4. PILT payments should be made directly to affected municipalities and should not be
subject to appropriation by the legislature.
5. The structure of the State of Alaska PILT for property taxes in the unorganized
borough should allow that as new local governments form, they will have access to a
share of State PILT revenues in order to provide a reasonable tax base.
6. PILT payment should be made proportionally to each municipality based on its mill
rate on an annual basis.
* Indexing instrument needs to be added
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Municipal Advisory Group Resolution 2004-4: Approved
Municipal Advisory Group Resolution 2004-5
A Resolution Outlining thc Parameters of a Construction Impacts PILT to Municipalities:
A. Whereas construction of an Alaska gas pipeline will bring impacts to municipalities;
B. Whereas construction impacts of the project will begin prior to gas pipeline
construction, continue through the projected three-year construction period, and phase
out a year after construction ends;
C. Whereas the State has eliminated or reduced assistance to potentially impacted
municipalities and has begun the discussion of gas pipeline construction impacts to
municipalities;
D. Whereas funding for construction impacts and need for services as a result of
construction may not parallel each other;
E. Whereas adequate construction PILT funds must begin prior to construction to
provide timely, effective services to residents;
F. Whereas maximum Alaska hire will result in fewer construction impacts to
municipalities by reducing unemployment, in-migration and need for increased
services;
G. Whereas an increase in general wages within the affected municipalities will result
from limited availability of personnel for jobs during construction of the gas pipeline,
and the effects of that wage inflation are likely to linger after construction ends;
H. Whereas municipalities have particular concerns about the impacts of gas pipeline
construction on their road systems and infrastructure;
Be it therefore resolved:
1. Payment in lieu of taxes must fund impacts of gas pipeline construction with phasing
appropriate to provide funds for specific service delivery.
2. Project sponsors and the State of Alaska should expend maximum efforts to ensure
Alaska hire, thus mitigating the need for new municipal services to support an influx
of Outside workers.
3. Apart from construction or revenue PILTs, the State of Alaska Legislature and
Administration should provide financial assistance to impacted communities not
receiving a revenue PILT.
4. PILT payments should be transmitted directly to municipalities by the payors, as
would be the case for tax payments.
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Municipal Advisory Group Resolution 2004-5' Approved
Municipal Advisory Group Resolution 2004-6 Final
A Resolution Outlining Voluntary Measures to Ensure Maximum Alaska Hire for the
.Alaska Natural Gas Pipeline:
A. Whereas Alaska residents should benefit from natural resource development by having
access to both construction and operation jobs of thc Alaska Natural Gas Pipeline;
B. Whereas increased Alaska hire will Icad to mitigated impacts on affected
municipalities by reducing thc need for new services;
C. Whereas in 1998 thc Alaska North Slope Gas Commercialization Team
(Commissioners Will Condon and John Shively and Attorney General Bruce Both¢llo)
made recommendations for voluntary measures to ensure Alaska hire;
D. Whereas the team conducted its work against a background of U.S. and Alaska
Supreme Court decisions striking down previous Alaska Hire efforts;
E. Whereas thc group sought to avoid these problems by recommending requirements and
voluntary measures for Alaska Hire efforts on the part of gas pipeline/export project
employers;
F. Whereas thc Municipal Advisory Group endorses these requirements and voluntary
measures to ensure maximum training and hiring of Alaskans;
G. Whereas thc realization of maximum local hire can be of benefit to thc communities of
Alaska and thc companies involved in construction and operations of an Alaska
Natural Gas Pipeline;
Be it therefore resolved:
1. The State of Alaska should require Project sponsors to submit a plan outlining specific
measures to hire qualified Alaskans; to train, in a timely fashion, Alaskans who are
capable of becoming qualified; and to contract with Alaska businesses. Thc plan should
include scheduled benchmarks for achieving thc training and hiring of Alaskans.
2. Thc State of Alaska should require project sponsors and gas pipeline contractors to
advertise within Alaska for positions, and to usc State of Alaska job service
organizations to notify thc Alaska public regarding jobs.
3. Thc State of Alaska should require quarterly unemployment insurance submittals by
project sponsors and gas pipeline contractors to identify employees and employers
involved in project construction throughout the state.
4. Thc Alaska Department of Labor and Workforc¢ Development should create a
statistical indicator of thc number of Alaska resident and nonresident employees
involved in project construction by comparing quarterly UI submittals against other
indexes of Alaska residency, such as PFD qualifications and drivers licenses.
5. The State Commissioner of Labor and Workforc¢ Development should prepare and
present to the legislature an annual report, by employer, that identifies thc numbers of
Alaska residents working on thc gas pipeline project.
6. Thc State of Alaska should negotiate Alaska hiring goals and should develop
incentives to reward project sponsors that achieve those goals.
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Municipal Advisory Group Resolution 2004-6: Approved
Municipal Advisory Group Resolution 2004-7 Final
A Resolution Regarding Interruption During Construction of thc Natural Gas Pipeline and
Related Effects on a Construction PILT:
A. Whereas the PILT proposed for construction impacts would be phased over a five year
period- one year of pre-construction, three years of construction and one year of post
construction; ~
B. Whereas some construction impacts will require expenditures by municipalities and
communities prior to commencement of service delivery;
C. Whereas preparation for some construction impacts, such as increased call volumes to
local police departments, State Troopers and VPSOs, requires significant lead time for
recruiting, training and hiring new employees;
D. Whereas purchase of equipment such as ambulances requires a commitment of funds
and subsequent significant lead time between ordering and delivery;
E. Whereas an interruption in construction of a gas pipeline would cause negative impacts
in affected communities due to economic uncertainty, changes in employment and
social disruption;
F. Whereas a halt in construction would create a need for affected communities to adjust
recruitment and hiring, ordering of equipment, or other issues;
G. Whereas once the recruitment and hiring of employees to respond to construction
impacts has begun, it becomes imperative that construction PILT funds be maintained
even if construction is interrupted;
Be it therefore resolved:
If construction of the natural gas pipeline halts, the flow of construction-related PILTs to
the affected communities should continue for up to twelve months of an interruption.
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Municipal Advisory Group Resolution 2004-7: Draft
Municipal Advisory Group Resolution 2004-8 Final
A Resolution Recommending Maximum Effort to Require Provisions for Expansion of a
natural gas pipeline to accommodate additional exploration and production.
A. Whereas Alaska's North Slope holds the potential for tremendous reserves of
undiscovered natural gas;
B. Whereas article 8, sections 1 and 2 of the Alaska State Constitution declare that it is
the policy of the state that the development of its resources be made available for
maximum use consistent with the public interest and for the maximum benefit of its
people;
C. Whereas it is in the best interest of the state to provide for maximum competition in
the development of its natural gas resources;
D. Whereas it is vital that a natural gas pipeline project make provisions to accommodate
future exploration and production;
E. Whereas the state of Alaska has the authority to require certain provisions under the
Right of Way leasing act and the Stranded Gas Development Act;
F. Whereas recently passed federal legislation, Section 101 of"The Alaska Natural Gas
Pipeline Act" provides the Federal Energy Regulation Commission the authority to
order the expansion of a natural gas pipeline under certain conditions;
Be it therefore resolved:
o
The State of Alaska should include in contract negotiations under the Stranded Gas
Development Act and the Right of Way leasing act provisions for expansion of the
natural gas pipeline to accommodate future exploration and production; and
2. The State of Alaska should protect Alaska's interest in the upcoming FERC
mlemaking process and should utilize its standing with FERC to encourage an order
for expansion when it is determined to be in the best interest of the state.
Approved by vote:
Yes: City of Fairbanks; Fairbanks North Star Borough; Kenai Peninsula Borough; City of
Kenai; Tanana Chiefs Conference; City of Skagway
No' North Slope Borough
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Municipal Advisory Group Resolution 2004-8 DRAFT