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Bonding to Pay Oil and Gas Tax Credits has a "Substantial Risk" of Being Unconstitutional According to Legislative Attorneys


April 18, 2018
Wednesday PM

(SitNews) Juneau, Alaska - A legal memo from the non-partisan Legislative Legal Division is advising that Governor Walker's proposal to bond to pay off oil and gas tax credits has a "substantial risk" of being unconstitutional.

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Senate Bill 176 and its companion, House Bill 331, would establish a state corporation known as the Alaska Tax Credit Certificate Bond Corporation to issue bonds to borrow up to $1 billion to pay past-requested unfunded oil tax credits. The majority of the credit funding had been vetoed by Governor Walker in 2015 and 2016. Last year, the legislature chose to appropriate a lesser amount for the credits than were requested by the oil companies. 

In a legal memo to Senator Bill Wielechowski (D-Anchorage), a legislative attorney explains that based on the language of the Alaska Constitution and available case law, there is a "substantial risk" that the bill is unconstitutional. Article IX, Section 8 of the constitution provides that "No state debt shall be contracted unless authorized by law for capital improvements or unless authorized by law for housing loans for veterans, and ratified by a majority of the qualified voters of the State who vote on the question." Article IX, Section 11 of the constitution supplies an exception to that general prohibition for independent state corporations, when the corporation can pledge its revenue as security in the event of default.

"The Alaska Constitution expressly prohibits the legislature from bonding for state debt, and the two instances that are allowable must be approved by the voters. This bill seeks to avoid the constitutional ban by creating a pass-through state corporation whose sole purpose is to put the state in debt to pay the oil companies," said Sen. Wielechowski.

"This kind of debt is precisely the sort of thing our constitutional founders sought to prevent. The constitutional convention focused on ensuring the people give their permission when the state's credit rating would be at risk, because they and their children would be burdened by the debt for years to come. Oil tax credits are clearly not an allowable state debt prospect, but the bill also jeopardizes the state's credit rating without asking for the people's say," said Wielechowski

Senate Bill 176 and House Bill 331 are currently in their respective Finance Committees.

The Governor proposed legislation, SB 176 ("An Act Establishing the Alaska Tax Credit Certificate Bond Corporation"), would authorize the issuance of bonds to pay off the state's tax credit liability in a lump sum rather than paying it down incrementally over the coming years.

The State currently has an obligation to certain small oil and gas exploration companies of roughly $800 million. Before the Governor proposed the legislation, the Alaska Department of Law in conjunction with outside bond counsel carefully reviewed the legality of the bill under Alaska law, including the constitutional limitations on state debt.  In response to inquiries from Senator Wielechowski who opposes the bill, legislative counsel issued an opinion stating there is a “substantial risk” a court would find the tax credit bonds to be unconstitutional. The Alaska Department of Law disagrees with the legislative counsel's opinion published today.

"The proposed tax credit bonds in SB 176 are not general obligation bonds under the Alaska Constitution," says Attorney General Jahna Lindemuth.  "We've carefully reviewed the legal issues and are confident that these bonds are lawful under Alaska law."  The Department of Law has determined that tax credit bonds are a form of "subject to appropriation" debt that is permitted under Alaska law, as addressed in the Alaska Supreme Court’s 1995 decision Carr Gottstein Properties v. State. A majority of courts outside of Alaska that have addressed the issue have also concluded that “subject to appropriation” debt is a lawful form of financing.  The debt proposed in SB 176 is also consistent with long established bond issuance practice in Alaska. "The proposed financing in SB 176 will provide the basis for a successful issuance of securities," states Lindemuth, "and there are no constitutional concerns with the bill."

April 15th, Sunday, was the 90th and final day of the statutory legislative session. Although both the House and Senate have each passed the two constitutionally required bills, the Operating budget and School Funding, the two versions of each bill are quite different. According to a recent newletter by Sen. Berta Gardner, the next step is for the conference committees to negotiate and find a final agreement on all the areas of difference. Only then can the legislature adjourn and go home.  


On the Web:

MEMORANDUM -- SUBJECT: Constitutionality of SB 176


Editing by Mary Kauffman, SitNews


Source of News:

Alaska Senate Democrats

Alaska Department of Law



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