Suit against tax credit bonds bogs down over jury trial motion

  • From left to right, Gov. Bill Walker, Rep. Jason Grenn, Rep. Adam Wool and Revenue Commissioner are seen at a signing ceremony for House Bill 331 on June 26 in Fairbanks. The bill, which would authorize the sale of up to $1 billion in bonds to pay off now-discontinued oil tax credits, is now bogged down in a lawsuit challenging its constitutionality. (Photo/Courtesy/Office of the Governor)

A lawsuit challenging the constitutionality of a state law to pay off nearly $1 billion in oil and gas tax credits has slowed to a crawl as attorneys squabble over whether or not a jury should decide the matter.

Former University of Alaska Regent Eric Forrer requested a jury trial July 19 in the public interest lawsuit he filed May 14 against Gov. Bill Walker’s administration with the Juneau District of state Superior Court.

The request has resulted in each side filing multiple briefs in the debate over a trial, exemplified by the latest in the series filed by state attorneys Aug. 20 entitled, “Defendants’ Reply to Plaintiff’s Response to Defendants’ Motion to Strike Demand for Jury Trial”.

That filing, signed by Assistant Attorney General Bill Milks, contends the issue at hand is a matter of the reading of law and therefore is not eligible for determination by a jury of 12.

“This case is a facial challenge to a statute. A jury cannot determine what the words of a statute mean. A jury cannot determine what the words of the Alaska Constitution mean. Those are questions of legal interpretation solely within the authority of the judiciary,” Milks wrote.

He continued to note that House Bill 331, the administration-sponsored legislation authorizing the bond sale that passed June 20, has not yet been implemented. The Department of Revenue has not sold any bonds yet.

A bond sale was originally planned for sometime in August, but Deputy Revenue Commissioner Mike Barnhill said in June that the administration would hold off on marketing the bonds while the lawsuit progressed.

Barnhill referred questions for this story to the Department of Law; officials there did not respond to requests for comment.

Pushing ahead with the sale during the litigation would undoubtedly increase the state’s cost of borrowing greatly and damage the underlying economics of the plan to pay off the credits with borrowed money while not incurring additional costs.

Under the plan, the companies and banks holding credit certificates would take a up to a 10 percent discount on the amount they are owed to get the money right away and thus insulate the state from borrowing costs.

Forrer filed the lawsuit on the belief that such sale would violate the Alaska Constitution, which has tight sideboards on what the state can incur debt for and how it must be done.

The state Constitution generally limits the Legislature from bonding for debt to general obligation, or GO, bonds for capital projects, veterans’ housing and state emergencies. In most cases the voters must approve the GO bond proposals before the bonds are sold. State corporations can also sell revenue bonds, but those are usually linked to a corresponding income stream and only obligate the corporation to make payments, not the State of Alaska as a whole.

Legislative Legal Division attorneys in an April 13 opinion questioned whether the Alaska Tax Credit Bond Corp. — that HB 331 authorizes Revenue Commissioner Sheldon Fisher to set up — would truly have a revenue stream that could pass legal muster given it would rely on annual legislative appropriations to fund the debt payments.

Administration officials contend the plan is legal because the 10-year bonds would be “subject to appropriation” by the Legislature, which the bond buyers would be aware of, and therefore would not legally bind the state to make the annual debt payments.

Forrer’s attorney, Joseph Geldhof said in an interview that they are not trying to “slow roll” the legal process by asking for a jury trial to further delay a bond sale, but rather insisted the state’s attorneys have been “enormously uncooperative” and have not engaged in the typical case process.

Geldhof emphasized that the Department of Law has not yet filed an answer to the original May 14 complaint or a July 19 amended complaint.

“They won’t even admit, for example, that the tax credits are not a form of debt,” Geldhof said.

What exactly the tax credits are and how they should be treated is one of several similar material facts that should be decided by a jury, according to Geldhof.

He wrote in response to the state’s motion to strike the trial request that without an answer to the complaint or resolution of the facts in the cast that it’s too early for Judge Jude Pate to rule on the trial motion.

The state has “steadfastly ignored” the insistence that there are factual issues to resolve in the case, according to the Aug 8 response to the state. Geldhof argued that if the facts of the case can be settled, both sides could move for summary judgment, but that hasn’t happened yet.

Forrer wrote in an Aug. 9 affidavit that Revenue Commissioner Sheldon Fisher and other state officials have referred to the bonds as an “obligation” of the state as well as “subject to appropriation” and “revenue” bonds, thereby clouding how they should be viewed relative to constitutionality issues.

Forrer also stressed that it’s unclear what entity would be responsible for repaying the bonds, the State of Alaska or the Tax Credit Bond Corp., which could go a long way towards determining what would happen to the state’s credit rating if the Legislature eventually opted not to make the bond payments.

“Representatives of the state have not explained how, if the credit of the state is at risk, the faith and credit of the state is not implicated under HB 331,” Forrer wrote. “In fact, the bill does not include express language stating that the faith and credit of the state will not be pledged.”

Judge Pate has not yet ruled on the state’s June 25 motion to dismiss — based on the failure to make a claim for relief.

Geldhof made a request for oral arguments on the state’s motions to dismiss and the opposition to a jury trial Aug. 23.

Regardless of the outcome in Superior Court, the case appears primed for an appeal to the Alaska Supreme Court.

Elwood Brehmer can be reached at [email protected].

Updated: 
09/12/2018 - 9:16am

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