Former UA Regent sues state over tax credit bonding plan
(Editor's note: This story has been updated from its orginal version to include comments from Eric Forrer, who filed the lawsuit, and his attorney Joseph Geldhof.)
Questions regarding the constitutionality of the Walker administration’s plan to pay off the state’s $800 million-plus oil and gas tax credit obligation will likely be answered sooner than later.
Former University of Alaska Regent Eric Forrer filed suit against the administration May 14 in Juneau Superior Court, just two days after the Legislature passed House Bill 331 authorizing the Department of Revenue to sell bonds to pay the credits.
The lawsuit, filed in Juneau Superior Court, alleges the bond sale would commit the state to debt outside of the restrictions the Alaska Constitution puts on the Legislature’s ability to incur financial liabilities.
Administration officials, including Attorney General Jahna Lindemuth, 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.
Department of Revenue officials testified in hearings on the matter that the arrangement has been used in the past to fund other projects.
However, Forrer’s complaint argues that “Failure by future legislatures to make funds available to repay the ‘subject to appropriation’ bond scheme contained in HB 331 will have a negative impact on the credit rating of the State of Alaska,” just as not repaying more traditional general obligation bonds would.
“The implied promise in HB 331 that future Alaska legislatures will make appropriations to satisfy the ‘subject to appropriation’ bond scheme contained in the legislation essentially amounts to an impermissible dedication of funds contrary to the Alaska Constitution,” the complaint continues.
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 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.
Sen. Bill Wielechowski, D-Anchorage, raised the potential constitutionality issues in the first hearing on the plan in February.
Fisher said in testimony on the bill that the department planned to sell roughly $800 million in bonds sometime in late July or August and another, much smaller bond sale would be needed in a couple years to pay off the remaining credits that companies have earned but not yet claimed from the state.
The Walker administration hopes that paying off the credits in a lump sum would restart investment by small producers and explorers in Alaska’s oil and gas fields that has been slowed by three years of less-than-full credit payment amounts while the Legislature and the administration debated how to resolve the state’s large budget deficits, according to Fisher and supporters of the plan in the Legislature.
The 72-year-old Forrer said in an interview that he filed the lawsuit in the public's interest, adding that "atta boys are pouring in over the transom" since it became public.
It's clear the state owes the credit money, he said, but noted it has also lived up to the law by making annual appropriations in line with the statute that spells out the calculation for the oil-price driven minimum credit payment formula in the past two budgets.
"The pressure point is coming, we presume, from the banks and the oil companies holding credits," Forrer said.
He suggested the Legislature and the Walker administration should have put the bonds up to a vote of the people, as is required for GO bonds, and that they should've expected a court challenge in the absence of additional measures to quell the constitutionality questions surrounding the plan.
An amendment to HB 331 by Rep. Scott Kawasaki, D-Fairbanks, that called for a public advisory vote on the bonds was rejected during debate on the House floor.
Questions to the Department of Revenue regarding how the suit might impact the bond sale were responded to by the Department of Law. Spokeswoman Maria Bahr said the Revenue Department will review the issue with its legal counsel and, as is general practice, the Law Department would not comment further on the active litigation.
One matter state attorneys will likely analyze is whether or not the issue is “ripe” for a challenge given Walker has yet to sign HB 331 into law.
The complaint notes that given it is the administration’s bill “the likelihood that HB 331 will become law is as certain as anything can be in the political context.”
Forrer's attorney Joseph Geldhof acknowldeged there is a pottntial ripeness issue in filing the suit before HB 331 is officially the law of the land, but said they wanted to give Walker an opportunity to veto the bill and call the Legislature into a special session to address at least this year's credit payments.
He said there is "a strong moral obligation" for the state to pay the tax credits, but turning that into a debt that could impact the state's credit rating is not the proper, or legal, way to do it.
The suit also alleges a provision in the bill attempting to limit legal challenges to a period within 45 days after approval of a resolution to authorize a bond sale is an unconstitutional restriction on citizens’ abilities to seek judicial review. The provision was added to the bill by the Legislature after the constitutionality issues were raised.
"It shows we're running the state like a clubhouse gang and not a real state," Geldhof said.
The administration has 40 days to respond to the complaint.
Elwood Brehmer can be reached at [email protected].