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

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

A DNR map of navigable and non-navigable waters are seen on the Kenai Peninsula. (Screenshot)
State unveils maps in effort to ‘unlock’ Alaska waters

The maps are part of an initiative to assert control of state lands.

On Monday, the final day of the May long weekend, Harri Herter from Kamloops takes turns and gives friends thrilling jetski rides on little Shuswap Lake. - Image credit: Rick Koch photo.
Lawsuit challenges Jet Ski use in bay

Coalition of environmental groups says Fish and Game’s process to rescind JetSki ban was illegal

Alaska Gov. Mike Dunleavy speaks during a news conference on Wednesday, May 12, 2021, in Juneau, Alaska, with a number of state legislators around him. Dunleavy discussed a proposed constitutional amendment dealing with the Alaska Permanent Fund and the Permanent Fund dividend. (AP Photo/Becky Bohrer)
Dunleavy proposes new changes to Permanent Fund

The changes are an amendment to updates he proposed earlier this year.

A vial of Pfizer’s COVID-19 vaccine is seen at Central Emergency Services Station 1 on Friday, Dec. 18, 2020, in Soldotna, Alaska. (Ashlyn O’Hara/Peninsula Clarion)
Youth 12-15 years old can now get vaccinated

Borough emergency management is working to assist the Pfizer vaccine rollout efforts to the new eligible population.

Megan Pike, Kenai Watershed Forum’s education specialist and Adopt-A-Stream program coordinator, wades into Soldotna Creek to dig up creek bed samples for a group of Connections Homeschool students to parse through for macroinvertebrate sampling, on Thursday, Nov. 7, 2019, in Soldotna, Alaska. (Photo by Victoria Petersen/Peninsula Clarion)
Summer camp registrations open at Kenai Watershed Forum

The forum canceled its summer events last year because of the coronavirus pandemic.

The entrance to the Kenai Courthouse in Kenai, Alaska, photographed on Feb. 26, 2019. (Peninsula Clarion file)
Identity of Alaska Court System hacker still unknown

The system was able to restore email access Tuesday.

U.S. Census Bureau Director Steven Dillingham addresses state and Alaska Native leaders Friday, Jan. 17, 2020, in Anchorage, Alaska. (AP Photo/Mark Thiessen)
State redistricting may take longer this year

State legislative districts are redrawn by a board of five people following the decennial census.

The badge for the Kenai Police Department
Man arrested in break-in at Kenai Central High School

The man, 36-year-old Christopher D. Stroh, allegedly stole miscellaneous items from the school on Sunday.

Most Read