Alaska oil credit bond plan faces legal challenge
A plan to pay off Alaska’s tax credit debt to oil prodcers by issuing bonds is facing a court challenge.
The tax credit plan – part of a package introduced by Gov. Bill Walker as the Alaska Economic Recovery Plan – allows the state to sell bonds to buy back accrued oil and gas company tax credits.
Eric Forrer, a former University of Alaska regent and a retired contractor, filed the lawsuit in state court May 14, days after it was approved by the state legislature.
The lawsuit seeks to block the state from implementing the plan, claiming it violates the state’s constitution, which limits the authority to incur debt.
“I just think it opens the floodgates to very questionable legal structures, certainly regarding debt,” Forrer said in an interview.
He brought the lawsuit as an Alaskan resident on behalf of the public interest, the complaint states. Forrer said he’s gotten several “attaboys” from residents frustrated by what he described as a lack of political courage by legislators to make hard choices to solve the state’s financial problems.
“I think we sort of tapped into a vein of frustration in the state,” Forrer said.
Walker sought the bill earlier this year, describing it as a way to pay off $1 billion in oil and tax credits at a discount.
Last year, the Alaska legislature ended the oil and tax credit program provided to small producers and explorers. But oil producers already hold $800 million in credits and another $200 million will be owed by the time the program ends, according to the Walker administration.
The bill is awaiting transmittal to his office. In a statement after the May 11 passage, Walker hailed it as a way to clear the state’s balance sheet with no additional cost to taxpayers.
Producers would be paid early in exchange for a small discount that would finance the state’s debt, he said.
“I’m pleased the Legislature is fulfilling Alaska’s past promises to pay tax credits to small independent explorers in exchange for investing in our state,” he said. “This will close out old debts to oil and gas entities, help companies invest in their operations, and put Alaskans to work.”
But Forrer’s lawsuit claims that the plan violates the Alaska constitution, which only allows for state debt to incurred for capital improvement projects or housing loans for veterans programs following voter approval.
Maria Bahr, a spokeswoman for the Alaska attorney general, said in an email that the office is analyzing the lawsuit and cannot comment on active litigation.
In a May 2 legal opinion, Attorney General Jahna Lindemuth wrote that “financing tools like those proposed in this bill are not prohibited by the Alaska Constitution.”
The proposed bonds would not be considered debt as they would be “subject entirely to the legislature’s discretion to appropriate funds for that purpose, and the bonds give bondholders no recourse against the state,” the opinion says.
Forrer’s attorney, Joseph Geldhof, sees that language as a way to circumvent the state’s prohibitions. He questioned what would happen if bondholders were not paid back and sued.
“Anybody who says when you issue a billion of dollars of debt instruments and they say the faith and credit of the state is not implicated – I just don’t get that,” he said.