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Court Upholds Tax Credit Bond Legislation

Jan 10, 2019 | Government, Monitor, Oil & Gas

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The Alaska Superior Court granted the state’s motion to dismiss the complaint challenging HB 331—legislation that permits the state to issue bonds to pay down oil and gas tax credits. The superior court agreed with the state that the subject-to-appropriation bonds authorized in HB 331 did not create unconstitutional “state debt” for the purposes of the Article 9, section 8 of the Alaska Constitution.

“The court rightfully affirmed that when bonds are ‘subject-to-appropriation,’ they are not truly a debt owed by the state,” said Attorney General Kevin G. Clarkson. “HB 331 was an innovative solution to the difficult problem faced by Alaska’s oil and gas explorers, and I am pleased that the superior court has upheld it as constitutional.”

HB 331, enacted in 2018, established the Alaska Tax Credit Certificate Bond Corporation. The purpose of the Corporation is to finance the purchase of transferable tax credit certificates issued under AS 43.55.023, production tax credit certificates issued under AS 43.55.025, and refunds and payments claimed under AS 43.20.046, 43.20.047, or 43.20.053. The Corporation may issue up to $1,000,000,000 in subject-to-appropriation bonds. The proceeds from bonds issued would be disbursed, subject-to-appropriation, from the Corporation to the Department of Revenue for the tax credit and refund purchases. Because of the litigation, the Corporation did not issue any bonds in 2018.

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“With this tax credit bond program, we are following through in paying down the tax credits, so industry and the financial markets know we are open for business,” said Department of Revenue Commissioner Bruce Tangeman. “This will bring more stability to state finances and help the business community to get the economy back on track.”

Final judgment has not been entered in the case.

A formal Attorney General opinion on the constitutionality of HB 331 and subject-to-appropriation bonds was published in May and can be viewed here.

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