Ruling on state’s motion to dismiss tax credit lawsuit expected in Nov.

A lawsuit challenging the Gov. Bill Walker administration’s plan to sell bonds to expedite repayment of nearly $1 billion in oil and gas tax credits appears to be back on track at least procedurally, but where that track will lead is still unknown.

Joseph Geldhof, an attorney for former University of Alaska regent Eric Forrer who brought the suit in May filed an 81-page brief with Superior Court Judge Jude Pate Oct. 8, rebutting the state’s arguments and reasserting multiple ways in which Forrer believes the bonding plan is unconstitutional.

Geldhof drafted the hefty response to a June motion to dismiss in barely a week; Pate ordered him to file the response by Oct. 8 during oral arguments held Oct. 1. In it, Geldhof again stressed that state attorneys have derailed the case and prevented an orderly resolution by erroneously contending Forrer has failed to state a claim upon which relief can be granted.

Geldhof has also repeatedly highlighted in court documents and interviews that state attorneys have not filed a response to Forrer’s original or amended complaint.

He notes in the lengthy brief that the bond plan, as laid out in House Bill 331 that the Legislature passed in May, violates Sections 6, 7, 8, 10, and 11 of Article IX of the Alaska Constitution.

Relief can be granted in the public interest lawsuit by finding HB 331 unconstitutional and thereby preventing an unlawful bond sale that has the potential to damage the state’s credibility in financial markets, according to Geldhof.

The lawsuit alleges the bond sale would commit the state to debt beyond the restrictions the Alaska Constitution puts on the Legislature’s ability to incur financial liabilities.

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.

They would be sold by the Alaska Tax Credit Certificate Bond Corp., which would be established solely for the purpose of managing the bond money.

The state Constitution generally limits the Legislature to bonding for debt through general obligation, or GO, bonds for capital projects, veterans’ housing and state emergencies.

Under HB 331, the companies and banks holding refundable tax 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.

Geldhof wrote that the bonds are indeed state debt under the Alaska Constitution as issuance of the bonds would impact the State of Alaska’s credit rating and its ability to take on additional debt. He argued further that HB 331 “establishes an obligation involving borrowed money where there is a promise to pay bondholders in the future” and also contains legal provisions that would bind the state to repay bond holders regardless of whether the Legislature makes funds available to pay them or not.

“The state appears to believe any and all of the constitutional claims made by Forrer are floating free from any factual context,” Geldhof wrote Oct. 8. “The state seemingly believes application of the magic ‘subject to appropriation’ language to Forrer’s Article IX, Section 8 claim eliminates any requirement for the court to engage in analysis of Forrer’s other constitutional claims.”

For their part, state attorneys in a 12-page brief filed Oct. 12 that “(b)ills passed by the Alaska Legislature are presumed to be constitutional” and although Article IX, Section 8 restricts the sale of bonds backed by the state’s credit, it does not preclude a public corporation from issuing bonds backed by legislation that “explicitly provides that the bonds do not constitute a general obligation of the state, are not state debt, and payment by the Legislature of any debt service on the bonds is subject to legislative discretion.”

Assistant Attorney General Bill Milks continued to write that the state wants a prompt resolution to the case as it has prevented a bond sale — originally planned for August — because the looming litigation makes the bonds unmarketable, a point state attorneys noted in the Oct. 1 hearing.

Despite Geldhof’s assertion that five facts in the case preclude dismissing it outright, Milks responded that only the impact of a decision by the Legislature to not appropriate the bond payments on the state’s credit rating and the fact that issuing the bonds would alter the state’s ability to incur additional debt can be weighed for the purposes of the dismissal motion.

“The remainder of the plaintiff’s ‘facts’ are actually assertions of law regarding the interpretation of various provisions of the Alaska Constitution and the application of those provisions to the terms of HB 331,” Milks wrote. “They are not facts that this court must accept as true for the purposes of a motion to dismiss; rather they are statements of the legal conclusions that the plaintiff hopes this court will reach.”

State attorneys have also leaned heavily on the Alaska Supreme Court’s ruling in the 1995 case Carr-Gottstein Properties v. the State of Alaska in which the court ruled constitutional debt is “an obligation involving borrowed money where there is a promise to pay sums such as rents accruing in the future whether funds are available or not.”

They contend the subject to appropriation clause in HB 331 makes it constitutional because it outwardly states the Legislature will determine whether or not those funds are available.

Geldhof insists the state is misapplying the Carr-Gottstein ruling because it applied to a lease-purchase agreement to be backed by a direct revenue stream of lease payments and not bonds funded by appropriations of the Legislature.

Pate said Oct. 1 that he would likely rule on the motion to dismiss sometime in early November.

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Elwood Brehmer can be reached at [email protected].

Updated: 
10/25/2018 - 8:25am

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