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After the Keystone pipeline spilled 14,000 barrels of crude oil onto Kansas pasture and into a creek, Gov. Laura Kelly is on board with reconsidering the state's property tax exemption for pipelines.
"I thought we should have done that a long time ago," Kelly told The Capital-Journal on Tuesday. "Yeah, that, I think, was a mistake that we made. ... I think that was a big mistake to provide a property tax exemption."
The pipeline failure happened Dec. 7 on the 36-inch Keystone pipeline about 3 miles east of Washington. An estimated 588,000 gallons of oil stained the prairie black and spilled into Mill Creek. It is the biggest onshore oil pipeline spill in nine years and bigger than all previous Keystone spills combined.
Cleanup efforts have been slow. The type of crude oil carried by the pipeline is particularly difficult to clean. After two weeks, just over half of the oil has been recovered. The company advised ahead of the winter storm that the weather could further slow the recovery rate.
Kansas lawmakers could end tax exemption after oil spill
Ending the tax exemption is likely on a short list of what state lawmakers could do in response to the oil spill as the pipeline falls under federal regulation. Meanwhile, Sen. Mike Thompson, R-Shawnee and the Senate's top energy policymaker, has expressed reluctance to do more than hold hearings.
TC Energy has benefited from several million dollars worth of tax exemptions since it opened in 2011 and before. State lawmakers passes a package of tax benefits for various energy projects as part of an effort to woo the Keystone pipeline to Kansas.
Legislative records show Kelly, who was then in her second year as a state senator, was one of two senators to vote against the bill with the pipeline tax exemption in 2006.
Kansas statute 79-227 exempts new oil and natural gas pipelines from property taxes from the start of construction until 10 years after construction is completed.
While she supports ending the tax exemption, Kelly, who considers herself to have an "all of the above" approach to energy policy, is not opposed to the oil and gas industry as a whole.
"It was a pleasure to speak at the Kansas Independent Oil & Gas Association conference in Wichita yesterday," the governor tweeted in August. "This industry unlocks the potential underneath our feet, puts tens of thousands of Kansans to work, and pumps hundreds of millions of dollars into our state’s economy."
In 2006, as TransCanada explored routing a pipeline through Kansas, legislators passed the Kansas Energy Development Act with the intention of incentivizing energy projects. The company later said it invested more than $680 million into the Kansas economy with the pipeline.
The Keystone pipeline's Cushing extension connects Steele City, Nebraska, to Cushing, Oklahoma. It spans about 210 miles in Kansas, passing through Washington, Clay, Dickinson, Marion, Butler and Cowley counties.
Kansas only state along Keystone route with this property tax exemption
No other states along the Keystone route had such a property tax exemption. Other provisions in the gut-and-go 21-page bill created income tax credits and accelerated depreciation. It included refineries, pipelines, coal power plants, ethanol plants and fertilizer plants.
Legislative staff estimated the pipeline provisions of the law would result in $1.7 million in lost revenue for fiscal year 2009, the only year with an estimate. The figure assumed the Keystone pipeline would qualify.
But by 2012, officials had estimated that TransCanada was avoiding about $19 million in a single year of property taxes. At the time, the Kansas Department of Revenue and local county governments challenged a Court of Tax Appeals decision to approve the exemption, citing a legal requirement for Kansas refineries to have access to the pipeline.
The Kansas Court of Appeals later upheld the exemption, ruling that while the refineries did not have direct access to the Kansas portions of the pipeline, indirect access from existing pipelines connecting the refineries to Oklahoma satisfied the law because lawmakers did not require otherwise.
"Although requiring a direct connection to a 'qualifying pipeline' by Kansas refineries would arguably benefit Kansans more, this is a question for the legislature and not for the courts. ... To find otherwise would require us to rewrite the statute, which we have no authority to do," the court opined.
The Legislature did not amend the statute after the ruling — but it has been tried.
In 2017, a bill would have repealed the exemption for new projects while leaving existing projects unaffected. Local government officials supported it. The bill died in committee after opposition from the Kansas Petroleum Council and other oil and gas companies and lobbyists. Similar proposals met the same fate in 2015 and 2016.
This article originally appeared on Topeka Capital-Journal: Kansas could revisit pipeline tax exemption after Keystone oil spill