Alaska Editorial: Pipeline settlement provides certainty

  • Tuesday, March 8, 2016 1:02am
  • Opinion

The following editorial appeared in the Fairbanks Daily News-Miner:

It’s often said that good compromises leave everyone equally unhappy. That may be the case with the recently approved trans-Alaska oil pipeline valuation settlement between municipalities along the pipeline’s route and the companies that own it. The settlement will hold the assessed value of the pipeline at $8 billion for the next five years, less than its most recent valuation but not so much so that it will drastically affect the share of property taxes borne by local homeowners and small businesses. While the municipalities may have left some money on the table this year in avoiding a court fight over the pipeline’s value, they have secured a stable valuation for several years to come at a time when both the municipalities and oil companies are in need of fiscal certainty.

Arriving at the pipeline’s value has always been a contentious process, often with overlapping court cases that saw prior years’ taxes placed in escrow as the dispute wound through the justice system. It was a high-stakes battle, particularly for municipalities, which have far less capacity for legal staffing than do the four companies that own the pipeline — BP, ConocoPhillips, ExxonMobil and Unocal Pipeline Co. The line owners would low-ball the valuation, claiming a value as low as $800 million. The municipalities would aim far higher, sometimes in excess of $15 billion. The State Assessment Review Board would weigh in with a number in between, and the matter would ultimately end up in the lap of the Alaska Supreme Court.

While that process was fruitful for the municipalities, resulting in valuations close to $10 billion for the pipeline for the last two years, it was also one fraught with consequence.

If at any point the state Supreme Court accepted the arguments of the oil companies and lowered the valuation significantly, it would add a significant burden to local homeowners and small businesses, since the pipeline is by far the largest single property tax revenue source in the borough. And that lower valuation could have set a precedent going forward, meaning that future years would see the same valuation or less as production declined and assets depreciated.

While the municipalities and producers rarely see eye to eye, the recent slump in oil prices made both sides more amenable to a compromise than they had been in previous years. With the state squeezed and looking to cut funding to local priorities, the boroughs needed an assured revenue stream that wouldn’t fluctuate as state funding levels might. And with profits far lower than they have been for several years, producers were interested in fiscal certainty that would both somewhat reduce the pipeline’s valuation from previous levels and provide their companies fiscal certainty with regard to operating one of their biggest assets.

The pipeline valuation settlement may not be the highest value municipalities could have extracted for the trans-Alaska oil pipeline. But in uncertain fiscal times and with oil prices and production slumping, it will offer some measure of stable revenue for the borough. What’s more, it will free up borough legal staff formerly consumed by the high-stakes fight to focus on other matters of legal importance. Kudos to the municipalities and producers for coming to the table and gaining some fiscal certainty in an uncertain time.

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