by Dan E. Dickinson, CPA
Is a gas pipeline economic? First if investors think that commodity prices in the future won’t cover the tariff – and at today’s prices and estimated tariffs they certainly won’t – there will be no gas line.
Moreover, if investors suspect that the State has no other new sources of revenue they will be equally reluctant to invest in a gas line. Unknown future taxes on a potential gasline can be as troubling as low forecasted natural gas prices in making a project uneconomic.
A “contract” or legislative offer of fiscal stability which fixes taxes for some period have proven to be hard sells in this state politically. And even if we could all come to an agreement, it may not be enough. In 2008, as energy prices climbed Dr. David Wood noted that “…even in circumstances where fiscal stability is offered by contractual clause…or by legislation…it is possible for such clauses to be circumvented by governments willing to exploit increased power provided to them by changing market conditions.”
We can’t control natural gas prices. However we can create a state fiscal system that is viable even without a gas line. Obviously, we will need such a plan if there is no gasline project. And we will need a plan to cover the State’s needs if a gasline project is built but turns out not to be the cash cow that has been officially forecast. So if we generate a plan soon it might enable a gasline project by allowing the State to negotiate from a rational, not desperate, position for investment.
A reasonable fiscal plan might include slowing the growth of general fund spending, use of earnings from the Permanent Fund and other State investments, broad based taxes such as a personal income tax, sales tax or gross receipt tax or wider business income taxes. This type of balanced fiscal plan could help us convince ourselves, and others, that we don’t see a gas pipeline as the only place to turn for State needs. And that could go a long way towards making our gasline dream an economic possibility.
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