Bill to pay tax credits signed, but lawsuit puts bond sale on hold
Gov. Bill Walker’s administration filed a motion in state court June 25 to dismiss a lawsuit challenging the constitutionality of a plan to sell bonds to pay off more than $800 million in oil and gas tax credits, but state attorneys are not pushing the most obvious argument to have the case thrown out.
Assistant Attorney General Bill Milks filed the documents in Juneau District Superior Court contending former University of Alaska Regent Eric Forrer, who filed the public interest lawsuit May 14, did not correctly state a claim for relief in his complaint.
Milks also argued against Forrer’s challenge of a provision limiting lawsuits questioning the constitutionality of the plan to within 45 days after the administration’s House Bill 331, which authorized the bonds, because the bill hadn’t passed when the suit was filed.
He further wrote that several other states have enacted similar provisions limiting the time in which bond sales can be challenged and Alaska has similar laws relating to other public finance issues.
“These statutes reflect an understanding that delay, because of litigation, might impair a public agency’s ability to operate financially, be troublesome to third parties, and decrease the marketability of bonds issued by public agencies,” Milks wrote.
Milks continued that because the lawsuit was filed before the clock on the 45-day limit had started, “Forrer’s claim as to the application of the statute is thus moot.”
Deputy Revenue Commissioner Mike Barnhill said in a brief interview that the administration would hold off on a bond sale, at least initially, while Forrer’s lawsuit is still ongoing. The concern is the litigation could impact the marketability of the bonds.
“Impacting the marketability of course impacts the economics of the transaction,” Barnhill said, as interest rates for the bonds would undoubtedly be much higher if the state tried to sell them while the lawsuit is active.
The state will reevaluate the situation this fall and determine what to do going forward depending on the status of the lawsuit, according to Barnhill.
The Walker administration hopes that paying off the credits in a lump sum will 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 Revenue Commissioner Sheldon Fisher and supporters of the plan in the Legislature.
Forrer and his attorney acknowledged in interviews shortly after the suit was filed that by filing it preemptively — HB 331 had not yet passed the full Legislature and been signed by Walker, although all indications were it would be — they had left themselves open to a ripeness argument because the plan was not yet law.
However, they said they would simply re-file the suit after Walker signed the bill if it was dismissed on ripeness grounds.
Administration officials said the state likely would not ask for dismissal based on the timing of the suit because doing so would just drag out a legal process they want resolved as quickly as possible.
Walker said when he signed the bill June 20 in Fairbanks that he expects to see new jobs and increased oil and gas exploration work stemming from the new law.
“Alaska’s economy is on the right track thanks to progress we made this year by working together across party lines to advance innovative solutions, including the one that became law today,” Walker said.
The lawsuit 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 contend the plan, drafted by Fisher, 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.
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.
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 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.
A backstop provision authorizing the state to allocate up to $100 million for companies holding credits that chose not to participate in the bond plan — they would take a up to a 10 percent discount on the amount they are owed to get the money right away and insulate the state from borrowing costs — was also included in the operating budget.
Barnhill said the $100 million could also be used to pay companies if a bond sale is delayed because of the litigation, but that likely wouldn’t happen until sometime in 2019.
The administration calculated the minimum fiscal year 2019 tax credit payment at roughly $184 million.
Elwood Brehmer can be reached at [email protected].