Alaska pauses plan to borrow $1 billion for oil-company payouts

Department of Revenue awaits decision in pending lawsuit against proposal

Eric Forrer, left, and Joe Geldhof, right, have sued the state of Alaska in an attempt to stop a plan that calls for borrowing up to $1 billion from global bond markets to pay oil and gas tax credits owed by the state. They are pictured May 22, 2018 in an interview at the Juneau Empire. (James Brooks | Juneau Empire File)

Eric Forrer, left, and Joe Geldhof, right, have sued the state of Alaska in an attempt to stop a plan that calls for borrowing up to $1 billion from global bond markets to pay oil and gas tax credits owed by the state. They are pictured May 22, 2018 in an interview at the Juneau Empire. (James Brooks | Juneau Empire File)

State officials confirmed Tuesday that a billion-dollar bond issue is on hold amid a pending lawsuit by two Juneau men.

The bonds, authorized by the Legislature and Gov. Bill Walker under House Bill 331, are intended to pay oil and gas companies for work performed under a now-defunct rebate program intended to encourage oil drilling.

That program pledged tax credits to companies, but the state has declined (through budgetary vetoes by Walker) to pay more than minimum payments on that debt. Now, HB 331 plans to borrow money from global markets to pay the debt. Companies will be encouraged to take a haircut on the amount the state owes them. If they do so, they will get their money faster. That haircut will compensate for the cost of borrowing the money, the state expects.

Before Walker signed the bill into law, Eric Forrer launched a lawsuit to stop it. That case, Forrer v. Alaska, has been referred to Superior Court Judge Jude Pate. Joe Geldhof is representing Forrer; Assistant Attorney General Bill Milks has filed motions on behalf of the state.

The state is seeking the lawsuit’s dismissal, and oral arguments have not yet been scheduled.

In a Tuesday afternoon presentation to the Legislative Working Group on Oil and Gas, state tax division director Ken Alper told legislators that the bond issue envisioned by HB 331 is on hold and unlikely to go forward until the lawsuit is settled.

Deven Mitchell, the state’s debt manager and the person who would issue the bonds, confirmed that there are no plans to issue them until the superior court decides the case. (The case is likely to be appealed regardless of result.)

While nothing prevents the state from borrowing $1 billion and proceeding with the HB 331 plan before a verdict, there is a risk associated with that, Mitchell said.

“The risk is that if the state doesn’t prevail in the lawsuit, then the bonds would be declared null and void, and they’d need to be paid off,” he said.

The state would have to repay the money, plus interest, and it would end up in a worse financial position than it was beforehand.

Mitchell and Mike Barnhill, deputy commissioner for the Alaska Department of Revenue, said that if the state gets a positive verdict from the superior court on the legality of HB 331, it may proceed with the sale even if the case is appealed to the supreme court.

“That would be the first waystation, if you will,” Barnhill said of a superior court ruling’s influence on the go/no-go decision.

If HB 331 is thrown out by the courts, the state operating budget approved by the Alaska Legislature allows the Department of Revenue to spend up to $100 million from the state general fund on a payment toward that $1 billion oil and gas credit debt.

Barnhill said the department could make a decision on that payment before the end of the fiscal year, which falls on June 30, 2019, but that will depend on the legal result.

He expects to have a preliminary determination before winter.


• Contact reporter James Brooks at jbrooks@juneauempire.com or 523-2258.


More in News

Shrubs grow outside of the Kenai Courthouse on Monday, July 3, 2023, in Kenai, Alaska. (Ashlyn O’Hara/Peninsula Clarion)
Anchor Point man indicted for 3 shootings at Homer family planning clinic, recovery center

The grand jury returned 12 counts total for the three shootings

The entrance to the Kenai Chamber of Commerce and Visitor Center is barricaded on Overland Avenue in Kenai, Alaska, on Thursday, Nov. 21, 2024. (Jake Dye/Peninsula Clarion)
Citing dangerous drivers, Kenai closes one entrance to visitor’s center

The barricade will be removed temporarily on Friday for Christmas Comes to Kenai festivities

A Kenai Peninsula Food Bank truck in the Food Bank parking lot on Aug. 4, 2022 in Soldotna, Alaska (Jake Dye/Peninsula Clarion)
Food bank seeks turkey donations as Thanksgiving nears

The local food bank is calling for donations of $25 to “Adopt-A-Turkey” for a local family in need

Seward City Hall is seen under cloudy skies in Seward, Alaska, on Thursday, Nov. 7, 2024. (Jake Dye/Peninsula Clarion)
Seward budget hearing covers bed tax, wages, emergency medical services

The Seward City Council on Nov. 12 considered a series of legislative items connected to 2025 and 2026 budget

The results of ranked choice tabulation show Sen. Jesse Bjorkman, R-Nikiski, winning reelection in the race for Senate District D. (Screenshot/Gavel Alaska)
Bjorkman, Vance win reelection after tabulation of ranked choice ballots

An effort to repeal ranked choice voting and the open primary system was very narrowly defeated

Jacob Caldwell, chief executive officer of Kenai Aviation, stands at the Kenai Aviation desk at the Kenai Municipal Airport on Thursday, Sept. 13, 2022, in Kenai, Alaska. (Jake Dye/Peninsula Clarion)
Kenai Aviation, Reeve Air submit proposals to bring air service back to Seward

Scheduled air service has been unavailable in Seward since 2002

Erosion damage to the southbound lane of Homer Spit Road is seen on Monday, Nov. 18, 2024, following a storm event on Saturday in Homer, Alaska. (Delcenia Cosman/Homer News)
City, DOT work to repair storm damage to Spit road

A second storm event on Saturday affected nearly a mile of the southbound lane

Kenaitze Indian Tribe Education Director Kyle McFall speaks during a special meeting of the Kenai Peninsula Borough School District’s Board of Education in Soldotna, Alaska, on Monday, Nov. 18, 2024. (Jake Dye/Peninsula Clarion)
Charter school proposed by Kenaitze Indian Tribe given approval by school board

The application will next be forwarded to the State Department of Education and Early Department

Suzanne Phillips, who formerly was a teacher at Aurora Borealis Charter School, speaks during a special meeting of the Kenai Peninsula Borough School District’s Board of Education in Soldotna, Alaska, on Monday, Nov. 18, 2024. (Jake Dye/Peninsula Clarion)
Aurora Borealis charter renewal clears school board

The school is seeking routine renewal of its charter through the 2035-2036 school year

Most Read