Alaska High Court Nixes State’s $1 Billion Scheme for Oil and Tax Credits

In this undated file photo, drilling operations at the Doyon Rig 19 at the Conoco-Phillips Carbon location in the National Petroleum Reserve, Alaska, are shown. (AP Photo/Judy Patrick, File)

(CN) — The Alaska Supreme Court on Friday shot down a state government plan to borrow up to $1 billion for tax credits owed to oil and gas companies, finding the state constitution bars taking on debt for that purpose.

“It is a foundational decision,” said attorney Joseph Geldhof, who represents a Juneau resident and carpenter who challenged the state financing plan in court. “It means the language in the Alaska Constitution that says we will not be incurring debt unless it’s with real revenue bonds or a vote of the citizens means what it says.”

Geldhof’s client, Eric Forrer, sued to block the money-borrowing plan proposed by then-Alaska Governor Bill Walker and approved by the Legislature in 2018.

In a 63-page opinion issued Friday, the state Supreme Court overturned a lower court’s dismissal of Forrer’s lawsuit. Writing for the unanimous five-judge panel, Justice Craig Stowers said upholding the state’s borrowing plan “would give to the Legislature a broad power specifically withheld by the framers” of the Alaska Constitution.

Stowers heard the case before he retired in June.

The legal dispute stems from programs created by Alaska lawmakers in 2003 and 2006 to incentivize oil and gas drilling in Cook Inlet, a bay linking Anchorage to the Gulf of Alaska, and North Slope, the uppermost region of the nation’s second-youngest state.

Facing problems related to aging oil infrastructure and shrinking revenues, the state sought to stimulate oil and gas production to help preserve jobs. To accomplish that goal, the state agreed to reduce royalties owed to the government for oil and gas extraction.

The program was considered successful in helping to preserve jobs, but it also cost the state $3.14 billion from 2010 through 2016.

State lawmakers voted to end the program in 2015 after oil prices plunged. By that point, the state had racked up $800 million in debt with another $200 million in expected costs.

In 2018, to fix the state’s precarious finances, Walker proposed borrowing $1 billion to pay off the money owed in tax credits. Oil and gas companies were required to take 10% cut in the value of their credits to receive immediate payouts in order to help cover the state’s borrowing costs.

To avoid the thorny constitutional problems, the state planned to create a public corporation funded solely by the Legislature. The new company would issue and sell bonds, purchase tax credits at a discount and repay bondholders through future spending approvals by lawmakers.

State lawmakers approved the plan by passing HB 311 in May 2018. A mere three days later, Forrer filed suit to block the plan. In January 2019, Juneau Superior Court Judge Jude Pate dismissed the case, finding HB 311 did not “create a legally enforceable debt.”

On Friday, the Alaska Supreme Court disagreed.

“We reverse and hold that this financing scheme — even if unforeseeable in the mid-20th century — is the kind of constitutional ‘debt’ that the framers sought to prohibit under Article IX, Section 8 of the Alaska Constitution,” Stowers wrote.

The court concluded that delegates who drafted the state constitution in the 1950s clearly intended “to control and restrict the issuance of bonds.”

Quoting his client, attorney Geldhof said while “it’s nice to win, the real winner is the Alaska Constitution and the citizens of Alaska.”

Geldhof added that this decision ensures that “goat-roping politicians” can’t cook up a scheme to borrow $1 billion to benefit “New York money boys” while sticking Alaska taxpayers with the bill.

“Our constitution clearly prohibits the kind of financing in question here, and this decision puts an end to the financial shenanigans that the previous administration was trying to foist upon the public,” Geldhof said.

The Alaska Department of Revenue and Alaska Attorney General’s Office did not immediately return emails and phone calls requesting comment Friday.

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