Against a backdrop of negotiations with fuel supplier Delta Western over a long-term lease, the Haines Borough Assembly is proposing to increase charges the company pays for storing and shipping fuel through town from $65,000 to about $1 million per year.
The proposals are viewed as a bargaining tactic by some assembly members, but they also reflect the growing importance of the local port for shipments of ultra-low-sulfur diesel into Alaska. A requirement for use of the cleaner fuel by all equipment, including in the state’s off-road communities, is effective this year.
The market for ultra-low-sulfur diesel has tripled shipments through Haines since 2008. The proposal for a borough excise tax on fuel has been around for more than a year and was pushed by former manager Tom Bolen.
On the recommendation of manager Mark Earnest, the assembly last week introduced an ordinance for a new fuel transfer excise tax at a half-cent per gallon. The tax would apply to fuels not sold in Haines and would bring in $75,000 annually, based on the 15 million gallons expected to be shipped through Haines this year.
“The idea here is that it would compensate for use of roads and public safety and the potential for fuel spills and things like that. It’s not an uncommon type of tax. We had one that was similar in Whittier,” Earnest told the assembly.
Earnest also is seeking a 1-cent-per-gallon charge in supplemental rent for fuel kept in tanks on borough-owned land, a change that would bring $150,000 annually to borough coffers. The borough intended to charge a half-cent per gallon in supplemental rent for the past 20 years, but a missed decimal point in a lease agreement essentially wiped out that source of income.
But the biggest surpise last week was a proposed ordinance to increase the tariff for fluids crossing borough property by a factor of 10, from a half-cent per gallon to a nickel, and to eliminate a previous volume discount. That would bring in $750,000 annually.
“This is a way of pushing the contract along a little faster?” remarked assembly member Jerry Lapp. “It will get somebody’s attention. I’ll tell you that much,” replied member Scott Rossman.
Earnest characterized the proposal as a starting point for negotiations with Delta Western, the town’s only fuel supplier. “It’s a big leap, but it’s a starting point for discussions. It can be negotiated and discussed. I’d like to at least have that discussion with Delta Western and come back with a recommendation for the borough assembly (Nov. 9).”
Tariffs in Alaska range from a half-cent to 5 cents, Earnest said. He said this week that he hasn’t heard back yet from the company on those numbers.
At last week’s assembly meeting, Rossman spoke in opposition to the excise tax. “I understand all these trucks going over the road and wanting a piece of that action, but we’ve already got three pieces of the action. Any tax that fuel companies are going to pay, we’re going to end up paying for it… It’s going to come directly out of our pocket at the pump.”
Earnest, however, said that current rates are not commensurate to the borough’s expenses in maintaining Lutak Dock. “You can look at the revnue that comes to that dock at 10 million gallons a year. That’s $50,000 to cover operations and maintenance and future repairs and replacement. I’d argue that’s an extremely low rate at this time.”
Earnest described the borough’s ports and harbors enterprise fund as “not well” and said money would be needed to upgrade Lutak Dock if Haines is to serve as a port for a natural gas pipeline from the North Slope.
“These projects cost tens of millions of dollars. Unless we get a massive influx of federal funds through gas line development, we’re on our own to do this. There’s diminishing opportunities to get grant funds for these projects,” he said.
Revenue for ports and docks aren’t keeping up with expenses, he said. “If it’s through Small Boat Harbor users or the freight crossing the Lutak dock, we need to address this. It’s one of the biggest priorities we should have. These facilities are worth millions if not tens of millions of dollars,” Earnest said.
Under the lease Delta Western holds with the borough for land the municipality owns beneath the company’s fuel tanks near the Lutak Dock, the company would also pay base rent. The rental rate, set by borough code, must be a minimum of 10 percent of the property’s value, or about $45,000 annually.
Earnest said the point of the changes wasn’t to penalize Delta Western, but rather to get a fair return on its investments in its facilities.