(SitNews) Anchorage, Alaska - Friday the Alaska Supreme Court, in Forrer v. State of Alaska, struck down legislation enacted under the previous Walker administration in 2018 that authorized the issuance of “subject-to-appropriation” bonds to pay outstanding cashable oil and gas tax credits.  According to the Department of Revenue, there is $743 million in outstanding tax credits that were eligible to participate in the tax credit bonding program. The tax credit program ended in 2017. 

With the collapse of oil prices over the last six years, the State was no longer able to immediately pay such tax credits. As an alternative, the Walker administration introduced HB 331 which sought to issue “subject to appropriation” bonds to pay the tax credits. HB 331 permitted the State to pay the tax credit holders in 2018 with bond proceeds and the legislature would pay off these bonds over time. The legislation also provided that tax credit holders would have to accept a discounted payment in order to participate in the program.

The Alaska Supreme Court ruled HB 331 unconstitutional. (Download the Forrer v. State of Alaska Opinion)

The Alaska Supreme Court’s decision invalidates HB 331’s “subject-to-appropriation” debt. When anticipating a shortfall of revenue from previously enacted tax incentives, the 30th Alaska State Legislature attempted to offset future fiscal unpredictability by authorizing a discounted buyback of tax credits financed by bonds without pledging the “full faith and credit” of the State.

Without a vote of the people, the Alaska legislature created a public corporation capable of borrowing up to $1 billion through the issuance of subject-to-appropriation bonds to purchase outstanding oil and gas exploration tax credits, with bondholders to be reimbursed solely at the discretion of future legislatures through appropriations to the new public corporation.

A taxpayer filed suit, alleging, among other things, that the legislature violated the Alaska Constitution’s state debt limitation. The superior court granted the State’s motion to dismiss, ruling that the legislation did not create “debt” for purposes of the constitutional limitation. The Alaska Supreme Court reversed, finding that this financing scheme, even if unforeseeable in the mid-twentieth century, was the kind of constitutional “debt” that the framers sought to prohibit under article IX, section 8 of the Alaska Constitution. The Supreme Court reversed the superior court's decision granting the State's motion to dismiss, and affirmed the superior court’s decision rejecting the State’s arguments under section 11.

Vote Yes for Alaska's Fair Share campaign manager David Dunsmore released a statement saying,  "[Friday's] decision makes it even more urgent that we pass Ballot Measure 1. Alaska's Fair Share is the only revenue solution that can be implemented this fiscal year to protect Alaskan jobs, schools, the Permanent Fund, and critical services like the Alaska Marine Highway".

Dunsmore said, "While the credits at issue in the decision have been repealed, the wasteful per barrel tax credits continue to cost Alaskans tens of millions of dollars every year. Alaskans have been paying the cost of these credits with their jobs, their ferries, their dividends, and higher local taxes. Ballot Measure 1 will end these wasteful credits for our three largest and most profitable fields- the Prudhoe Bay Unit, the Kuparuk River Unit, and the Colville River Unit."

Alaska State Senator Bill Wielechowski commented on FaceBook writing about the things he believes are important to know about "the scheme passed by the legislature to issue bonds to pay nearly $1 billion in oil tax credits".

1. This was the right decision because the Constitution is very clear that you cannot issue bonds to pay off debt. Many of us argued this in debate in Juneau.

2. The statute on these oil tax credits is a purely discretionary one. It says the legislature "may" appropriate funds for these tax credits and the Tax Director "may" pay these tax credits

3. Those who sought to get these tax credits are very sophisticated people who undoubtedly had their attorneys and tax advisors review this statute and the risks it entailed.

4. That said, the State should honor our commitments to pay these credits - AND WE HAVE. The State actually had been paying these tax credits every year according to the recommended amounts in statute until this bonding bill passed.

5. The issue is not that we hadn't been paying these tax credits back, it's that the oil companies and their bankers want them paid back FASTER than the statute suggested.

6. The amount of tax credits we are suggested to pay is statutorily linked to the amount of production taxes we collect. Because the oil industry successfully lobbied several years ago to massively cut their production taxes, a collateral result was the amount the State was suggested to pay in tax credits also went down significantly.

7. When the oil companies and their bankers saw this, they went to the legislature and demanded to get paid back QUICKER than what the statute suggests. The legislature jumped and passed this unconstitutional debt scheme.

8. Contrast this to the PFD statutes, which state that full statutory PFDs "SHALL" be paid. The legislature has ignored this statute for years and made no attempt to pay back any of the unpaid PFDs.

9. It is clear who wields the power in Juneau."

Next Steps

The Alaska Departments of Revenue and Law have undertaken an in-depth review to understand the impacts of the Forrer decision.  In accordance with the Court’s decision, the Department of Revenue will not proceed with an issuance of tax credit bonds. 

On the Web:

Download the Opinion

Source of News:

Office of Governor Michael Dunleavy
www.gov.alaska.gov

Vote Yes for Alaska's Fair Share
voteyesforalaskasfairshare.com

Alaska State Senator Bill Wielechowski's Face Book page

Representations of fact and opinions in comments posted are solely those of the individual posters and do not represent the opinions of Sitnews.

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