In an article this week in the Alaska Dispatch, reporter Alex DeMarban writes on a recent decision by the State Assessment Review Board (SARB) increasing the value of TAPS for property tax purposes above the level set by the Department of Revenue. See "Alaska undervalued oil pipeline by billions, assessment board finds," May 30, 2013.
The story does a thorough job of reporting on the SARB's decision, but does very little in assessing the full impact of the decision on the state. State property taxes on TAPS are divided among four entities, the state, the North Slope Borough, the Fairbanks North Star Borough and the Municipality of Valdez. The SARB's decision, if it stands on review, will increase the level of taxes received by all four entities.
But the taxes also will increase the costs of operating TAPS, and as a result, the rates charged for transportation down the pipeline. This, in turn, will reduce the wellhead value of the oil, reducing the amounts received by the state as royalty and in production taxes. None of the local entities will share in that loss.
The real story is in that additional effect, because the resulting reduction to the state in royalty and property taxes is not offset by the state's share of increased property taxes. In other words, the state is a net loser from the decision. The winners are the two Boroughs and Valdez, at the expense of the state.
Frankly, that may be something to keep in mind going forward when any of the three local entities ask for additional state assistance for this or that program. In the meantime, however, it is something that the Dispatch should keep in mind when reporting on the issue in order to provide readers with a complete story.
While your underlying point - that the State will be both gaining money from the higher TAPS valuation, and losing money from the higher transportation costs deducted from the royalty and production taxes - is sound, your conclusion that the State will be a net loser is hyperbole. At least if the public numbers are credible.
ReplyDeleteIn the simplest terms, a valuation of $8.67B at 20 mils is $173M in state revenue. Ben Anderson's followup Dispatch article 7/19 indicated total municipal taxes on this valuation at $84M. This may be deductible from the State asset tax, so let's call the State's total take $89M. Between royalty and production taxes, the State should lose no more than 47.5% of these expenses - or a total loss of $82M. Net revenue to the state of $7M. The same ratios on 1/8th the asset base result in net revenue of $1M. Net increase in revenue to the State of $6M.
There are many more incremental subtleties to be applied - how much of the municipal property taxes are deductible, how much of this tax burden is born by the state for it's royalty share (and therefore not deductible by the producers), how much are the producers or TAPS claiming in legal expenses fighting this which may be deftly claimed as a production expense and deducted from state taxes, etc. But in the end, these variables generally are small variations on the overall theme of a modest increase in State income in proportion to the increased valuation.
While the state is not as big a winner as it may superficially appear in the original Dispatch article, the state is not "a net loser from the decision".