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Alaska Supreme Court Strikes Down Oil & Gas Tax Credit Bonds Legislation

Sep 8, 2020 | Featured, Government, News, Oil & Gas

The conversation about oil and gas taxes is ongoing, though the debate about an oil and gas tax repayment plan initiated during the Walker Administration in 2018 has come to an end.

Last week the Alaska Supreme Court struck down legislation (HB331) that authorized subject-to-appropriation bonds to pay outstanding cashable oil and gas tax credits that were issued during a tax credit program that ended in 2017.

In 2018, the state owed approximately $1 billion to oil and gas companies that had participated in the program. The solution proposed by then-Governor Bill Walker and approved by the Alaska Legislature was to create a public corporation will the ability to borrow up to $1 billion through issuing subject-to-appropriation bonds. This process took place without a vote of the people.

Eric Forrer, a Juneau resident, sued the state, arguing that the legislature had violated the state debt limitation in the Alaska Constitution. Initially, the superior court granted the State of Alaska’s motion to dismiss, asserting that legislation didn’t create debt for the purposes of the constitutional limitation.

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However, The Alaska Supreme court has reversed this decision, invalidating HB331’s subject-to-appropriation debt. According to the ruling, “We reverse and hold that this financing scheme—even if unforeseeable in the mid-twentieth century—is the kind of constitutional ‘debt’ that the framers sought to prohibit under article IX, section 8 of the Alaska Constitution.”

While the original debt amount was $1 billion in 2018, the state has paid down approximately a quarter of that debt and now owes participants from the program approximately $726 million.

According to a statement from Governor Mike Dunleavy’s office, “The Departments of Revenue and Law have undertaken an in-depth review to understand the impacts of the Forrer decision. In according with the Court’s decision, the Department of Revenue will not proceed with an issuance of tax credit bonds.”

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On January 16, a fire destroyed the water plant and washeteria in the southwest Alaska village of Tuluksak. For the village of about 350 people, it was a devastating blow. The water plant was the only source of drinking water in the village, in which the primarily Yup’ik residents lack indoor plumbing and rely on honey buckets, not uncommon in the flat, swampy region.

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