Alaska’s plan to issue $1 billion in bonds to pay off oil and tax credits could be delayed by up to 18 months due to a lawsuit challenging its constitutionality.
State legislators were informed this week that the state will hold off on going to the bond market until the legal issues are resolved, according to local news reports.
Gov. Bill Walker signed a bill in June in which the state would pay off oil and gas producers who hold tax credits under a program that was ended last year.
But a lawsuit filed in May, shortly after it was passed by the legislature, claims the plan violates the state constitution limits on incurring debt.
Attorneys for state have filed a motion to get the case dismissed. No court date has been set yet.
“The administration determined it was in the best interest of the state to hold off in moving forward on the bond authority until the court system weighs in on the constitutionality of the financing system that was proposed,” said Deven Mitchell, the state’s debt manager.
He estimated it could take six to 18 months for the courts to rule on the issue.
When the bill went before the legislature in the spring, a timeline by the Department of Revenue anticipated that the first bond proceeds could be sold as early as August.
Joe Geldhof, an attorney representing Eric Forrer, a former University of Alaska regent who filed the lawsuit, said he was pleased the state is holding off on issuing bonds. If it had not done so, he would have sought a preliminary injunction to halt their sale, Geldhof said.
Walker has said the plan saves the state money in the long run by paying off the oil and tax credits at a discount that will pay for the bonding costs.
But opponents of the plan question whether it will save money. The lawsuit alleges it violates the Alaska constitution, which only allows for state debt to be incurred under certain circumstances.
A legal opinion by the legislature’s attorneys found a “substantial risk” that the plan to bond could be unconstitutional.
But the state attorney general wrote a legal opinion stating that the financing plan was not prohibited by the constitution because the bonds are subject to appropriation — relying on the discretion of the state legislature.
Last week, Alaska state Sen. Bill Wielechowski, D-Anchorage, who voted against the plan, said he doubted any bond deal would go forward until that issue is resolved.
“I think it would be a real challenge to issue $1 billion in bonds when there’s this legal cloud hanging overhead,” he said.