OPINION: Tax credit chickens come home to roost
KFC could probably hire Tom Cruise as its next celebrity Colonel Sanders with the number of chickens coming home to roost in Alaska.
A long-awaited and inexplicably delayed decision from the Alaska Supreme Court struck down as unconstitutional a bill passed in 2018 to pay off the state’s oil tax credit debt.
House Bill 331 would have created a shell company within the Department of Revenue to sell up to $1 billion worth of “subject to appropriation” bonds to settle with the independent oil and gas explorers who took the shaft from $630 million in budget vetoes by former Gov. Bill Walker in 2015 and 2016 amid multi-billion dollar deficits.
The fallout of the vetoes was massive. Banks now burned twice by Walker stopped lending into the state’s independent oil and gas sector. Caelus Energy was forced to sell North Slope assets to the major ConocoPhillips. Furie Operating Alaska, which had other cash flow problems, declared bankruptcy last year. The state was compelled to modify its loan agreements with Blue Crest in Cook Inlet and Brooks Range Petroleum on the Slope.
The Legislature shuttered the tax credit program in 2017 without a plan to clear the books, leaving it up to Walker’s administration to concoct a dubious idea to pay debt with more debt by taking advantage of the interest spread between the cost of the bonds and inducing companies to take haircuts of up to 10 percent on what they were owed in order to get paid faster than waiting on minimum statutory appropriations.
A public interest lawsuit by Eric Forrer of Juneau immediately halted the effort, which was initially upheld in Superior Court before being unanimously rejected by the Supreme Court and leaving the state once again on the hook for more than $700 million with no means in sight to pay now that savings accounts have been drained and the Permanent Fund Earnings Reserve balance reduced by some $5 billion after transfers to the principal account in the past two years.
Walker’s chickens came home to roost in 2018 as he was already headed toward defeat in a three-way race with former Sen. Mark Begich and eventual winner Gov. Mike Dunleavy before the abrupt resignation of running mate Byron Mallott amid a sexual misconduct scandal sealed his fate.
For prominent members of the Legislature, the reckoning was delayed but no less decisive after the Aug. 18 primary as Senate President Cathy Giessel and Sen. John Coghill were ousted along with fellow Republican legislators Reps. Jennifer Johnston, Chuck Kopp and Gabrielle LeDoux who chose to form a majority with Democrats after the 2018 election.
Candidates who favor paying out a Permanent Fund dividend according to the formula that is still on the books could upend the current majority caucuses after the November general election is settled, but they may well find that math is a stubborn thing and chasing the car is far more fun than sinking their teeth into the tires.
Now exacerbated by the coronavirus pandemic that has cratered oil prices, North Slope jobs and delayed promising exploration and development projects, the state’s budget situation will resist the ability to pay a full PFD and the economic situation is beyond being rescued by such simplistic promises even if they could be kept.
The oil tax credit issue would largely be moot had Walker not vetoed $630 million in credit payments after they were approved by the Legislature, but his 2016 plan — that was endorsed in this space — to use a portion of Permanent Fund earnings and set a fixed dividend amount for the ensuing three years would have put us on a much better footing than we find ourselves today.
For that the blame lies with the Republican-led House Majority that chose instead to drain more than $4 billion from the Constitutional Budget Reserve after the Senate had approved the bill by a decisive vote.
Four years later, some of the prospective new Republican legislators heading to Juneau have the same attitude of those who rejected a sensible path toward fiscal stability but this time they don’t have billions in savings to spend as an alternative and they are still stuck with the tax credit bill that Walker left the state through his vetoes.
They’ll be lucky if the toughest choice they have is grilled or fried, but a debate resembling whether the egg came first is more likely.
Andrew Jensen can be reached at [email protected].