For some Homer residents, seeing the back side of the jack-up rig Endeavour will be a welcome sight. For others, it will be regretfully stopped revenue that added to the local economy. Either way, it has spent a long visit at our dock, longer than anyone thought when it arrived. We’ve fielded an inordinate amount of phone calls and letters, and witnessed a robust debate about oil and gas development, all thanks to the rig. Are we wiser now than when the rig arrived? Do we know more about gas and oil development and the regulations that govern them?
It’s fair to say ‘perhaps’ to those questions.
Kenai Peninsula Mayor Mike Navarre broke the news to us on Monday that taxes on the rig work out to be a pretty penny for Homer. Based upon a preliminary assessment of $40,241,590, the following tax revenue amounts would be recognized for tax year 2013:
The Homer portion would be 4.50 mills equaling $181,087.16.
The Borough portion would be 4.50 mills equaling $181,087.16
The South Peninsula Hospital would be 2.30 mills equaling $92,555.65.
This is unexpected money that can be put to use by the City of Homer and the hospital for the benefit of Homer citizens.
Some people will argue this isn’t as much as it would have been if the rig was assessed for what Buccaneer Energy and the Alaska Industrial Development and Export Authority paid for it: $68 million. The assessment is made by the same state agents who work up the value of the rigs in Cook Inlet and the structures on the North Slope. Chapter 43.56 of the Alaska Statutes states that an annual tax of 2 percent can be assessed each tax year on Jan. 1 on “the full and true value of taxable (oil and gas) property taxable under this chapter.”
The more troubling question isn’t a lament on lost revenue, it’s on the value of the rig. Why $28 million less than its purchasing price?
Besides, now it is an upgraded and bolstered rig, which would make it worth more, right?
We can take comfort in the knowledge that there will be taxes paid to our small governments. The matter of taxes on property was highlighted when the Shell Oil moved the Kulluk through the Gulf of Alaska, hoping to get it to Seattle. Then it would have avoided paying the tax on its rig, speculators said when it grounded off Kodiak at Christmas time.
Shell had reportedly spent $292 million just on upgrades to the Kulluk since purchasing the drill rig in 2005. That would mean that Shell could have potentially been exposed to state liability tax on the Kulluk in excess of $6 million.
But while we’re talking about oil companies and taxes, there’s apparently more tax breaks out there than the whopper just delivered through Senate Bill 21. At the federal level in the U.S., Shell also lowers its tax bill with $200 million in annual tax breaks, according to the political blog Think Progress.
Tax breaks exist, traditionally, to give a leg up in the face of economic disadvantage. More and more, it looks like they go to those already advantaged: America’s richest and some of the wealthiest corporations doing business today.
If we say ‘so long’ to the Endeavour today, as Buccaneer had hoped, we can also take heart in the tax windfall soon headed our way.
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