Four States Eye Substantial Tax Windfall from Keystone XL Pipeline Approval
Policy + Politics

Four States Eye Substantial Tax Windfall from Keystone XL Pipeline Approval

The Senate this week will begin debating legislation to circumvent President Obama and authorize construction of the Keystone XL pipeline following approval of the same measure in the House on Friday.

The House’s 266 to 153 vote left the lower chamber well short of the 290 votes needed to override Obama’s threatened veto of the bill. But the vote put Obama under added pressure from the new Republican majority in Congress and some Democrats to eventually approve the $8 billion pipeline project that emerged as an important issue during the 2014 mid-term election campaign.

Related: A Day of Hollow Victories on the Keystone XL Front

Moreover, some GOP lawmakers see political value in forcing the president to follow through on his promise to veto the legislation and further delay a final decision on a high profile energy project that enjoys the support of 60 percent to 70 percent of Americans. 

Rep. Kevin Cramer (R-ND), whose state stands to benefit from the pipeline construction, told Fox News last week that if Congress is unable to override the veto, “I think it’s pretty clear to the public and everybody else that the president is the obstructionist, not the Congress.” 

Much of the focus of the debate, not surprisingly, has been on the potential environmental and economic impact of the massive construction project that would carry 83,000 barrels of oil a day– especially on how many jobs it would generate.

Conservative lawmakers, energy industry officials and labor unions seeking approval of the plan claim it would create 42,000 temporary jobs and spur economic growth throughout the Midwest and Southwest regions. The proposed pipeline route would snake its way from the tar sands of Alberta, Canada, southwest to the oil refineries and ports of the U.S. Gulf Coast.

Related: Why the Keystone XL Pipeline Is Already Dead

Democrats and environmentalists who oppose the project fear it could add to global warming and insist that proponents have grossly exaggerated the economic benefits. They cite a U.S. State Department study showing that only 3,900 of the 42,000 projected jobs would be in construction, and that once the project was completed, there would be only 35 permanent positions.

The State Department report also estimated that the construction project would contribute about $3.4 billion to the American economy, according to The New York Times.

For the states of Montana, South Dakota, Nebraska and Kansas – which together constitute the pipeline’s north to south route – there are also tens of millions of dollars in potential property, sales and excise taxes at stake that have received little attention until now. A new study by the Tax Foundation -- based on data contained in the State Department’s massive analysis of the proposed pipeline project -- spells out the specific tax benefits.

“Regardless of your opinion on the Keystone Pipeline, there is no doubt that the project would have state and local tax impacts, during both initial construction and post-constructions,” said  Liz Malm, an economist with Tax Foundation,  a leading independent tax policy research organization. “From my perspective, I think it’s always important to remember that federal law and legislation usually has a state and local budget impact.”

Related: Keystone XL Pipeline: No Oil, Plenty of Propaganda 

The tax benefits would be relatively modest throughout the two-year construction phase but would increase substantially once crude oil begins coursing through the 875 miles of pipeline.

Pipeline construction  within the U.S. would begin on the northern border of Montana, continue southeast through that state, then go on to South Dakota and Nebraska  where it would terminate on Nebraska’s border with Kansas. 

According to the State Department analysis, property taxes collected  as a result of eight construction camps that would be built by the construction company to house their crews would amount to just $4 million for seven impacted counties. However, the states would collect other sales and fuel taxes levied on goods and services during the construction period to  supplement their revenues further.

Related: Obama Wants Long-Term Infrastructure Plan, Not Keystone  

Once the project was completed, however, the State Department has estimated that local governments would collect a total of $55.6 million a year in property taxes – a tidy windfall for many county governments, school districts and other taxing entities. Montana would collect roughly half that total each year, according to the State Department, followed by South Dakota with $17.9 million and Nebraska with $11.8 million annually.

Ironically, last Friday’s House vote came on the same day that the Nebraska Supreme Court cleared the way for construction by ruling against landowners who charged that a state law approving construction of the pipeline was unconstitutional.

The White House had been using the pending lawsuit as one of its reasons for opposing congressional action forcing the approval of the pipeline. House Speaker John Boehner (R-OH) and other GOP lawmakers declared immediately that there was no excuse for the administration to wait any longer to rule on TransCanada’s six-year-old permit application to construct the pipeline through this country. 

“Finally, it’s time to start building,” Boehner said. 

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