Kenai Peninsula Borough Mayor Mike Navarre, one of 12 members of the Municipal Advisory Gas Project Review Board, sat down to answer a few questions about the board’s role in advising the state on the proposed Alaska LNG Project.
Rashah McChesney: Where is the balancing point between which tax structure would be best for the boroughs and which would be best for the project’s backers?
Kenai Peninsula Borough Mike Navarre: I think that’s one of the financial considerations. If you front-load a project like this, you change the economics, maybe to the extent that it doesn’t go anywhere. Whereas, if you equalize it and you’re willing to allow the project to be built — these are 20-year and 30-year contracts. This project will be here for a long time.
McChesney: Does it seem like a payment in lieu of taxes would result in less revenue for the municipalities? Is it less of a guaranteed source of revenue than the current property tax structure?
Navarre: I don’t think a PILT is less guaranteed. The thing is, is that this project is based on long-term contracts that will be guaranteed and the contracts are based on throughput. So, if it fails, I don’t think it would be any different than if the project cratered under the existing tax structure.
McChesney: Are there downsides to changing the tax structure to a PILT for this project?
Navarre: The downside to changing the tax structure is, I guess some uncertainty. What (we) need to figure out is exactly what that PILT is going to be and how it’s going to be organized, so that it’s fair for everybody and recognizes where the economic impacts are going to be. For me, specific to the Kenai Peninsula, we have to make sure that we have enough revenues in order to address the needs the community will have as a result of the project being sited here. The other thing is making sure that it’s not just a windfall for us because it is sited here. Under the existing tax structure, the biggest beneficiary LNG (project) is the Kenai Peninsula Borough.
McChesney: Why should that change?
Navarre: Because, I guess it’s luck of the draw. If this were going to Valdez, I’d be arguing for the same thing that I think I should be arguing as mayor of the Kenai Peninsula Borough. It should be fair for everybody. Just because it’s sited here doesn’t mean there aren’t economic impacts to the state elsewhere. So I think you have to recognize that.
McChesney: When the Municipal Advisory Group was first formed, it seemed like the situation was tense because the state had been perceived as basically negotiating on behalf of the affected municipalities — even though it has a conflict of interest given that it had a financial stake in the project. Has that changed?
Navarre: We just needed to know what it was going to look like and what the specifics are because, when you say a PILT — a payment in lieu of taxes — there are a bunch of structures for that. It was related to me by one individual from one of the companies that they just didn’t want to have to mess with valuations on (the project) with each of the municipalities that might touch the infrastructure. They just wanted to make one payment and let the state figure out where it would go. Well … from my standpoint, it ends up being allocated by the legislature based on pressure and who is in particular positions. That’s not right or fair, there needs to be some recognition of where the asset is valued, where the most impacts are going to be and ensuring that those places have enough tax resources in order to pay for (those) impacts.”
McChesney: So, it isn’t a question of whether you should change the tax structure, it’s a question of what the PILT will ultimately look like and how that will be determined?
McChesney: Now that you’re party to the discussion, do you find yourself more comfortable with the idea of changing the tax structure?
Navarre: I do.
McChesney: Will the advisory board weigh in on any of the potential environmental impacts of the project?
Navarre: No, I think that’s going to be independently up to the responsibilities of the municipalities.
McChesney: So with the Kenai Peninsula Borough, how do you determine what those impacts are going to be — given that some of the largest portions of this mega-project are to be sited there and it could have potential impacts on several of the local industries?
Navarre: That’s all part of how you negotiate because, right now for an existing construction project, they can start bringing in materials and stockpiling them until construction. Those are taxable assets, we could start taxing them now. But they don’t want those taxed while they’re under construction … when they’re not going to have any revenues. But, we’re going to be dealing with some impacts and so they can (maybe) make that in terms of payment in lieu of taxes that allows us some funding to take care of infrastructure needs while it’s being constructed. The other thing to look at is those types of infrastructure improvements that should be included in their assumptions for what they’re going to pay for. If the highway has to be relocated, there’s no question that it will be a cost to the project.
McChesney: What is the borough doing to prepare for this project?
Navarre: We’re discussing that right now, about whether we’re going to hire additional persons specific for this project, whether we think we have enough resources in-house. The reality is, as this thing moves along under the initial stages, we can probably do it in house. But, this is a huge project and so it’s not something that, if this thing continues to gain momentum, you want to ignore. So, if it costs some resources in order to protect some of the long-term financial tax structure of the Kenai Borough, or the resources coming to the borough, I think that most people will support that.
McChesney: Do you think the Kenai Peninsula Borough could benefit more from a PILT than the current tax structure?
Navarre: I don’t know, I think it could.
McChesney: Could is the operable word there?
Navarre: I think that’s the type of analysis that we need to do and, by the way, we will hire someone to help us evaluate that. I can do the basic calculations, but there’s a lot of assumptions that go into that. You know, if it quadruples our tax base … what are we going to do with that. If we got to the point where we were buying everybody cars, we’d have a huge influx of population, and that’s not sustainable. So, you’ve got to look at all the different nuances of what could happen with a project like this. From a policy standpoint, you could have impacts for a long time.
Rashah McChesney can be reached at email@example.com.