In a 23-15 vote Thursday afternoon, the Alaska House of Representatives approved a plan to borrow a billion dollars from global bond markets and send the money to small oil and gas companies.
House Bill 331, drafted by Gov. Bill Walker and modified slightly in the House, will advance to the Senate, where rapid approval is expected despite constitutional concerns raised by the Legislature’s own legal department.
The vote was along neither party nor caucus lines. Rep. Sam Kito III, D-Juneau, and Rep. Justin Parish, D-Juneau, voted against the idea. Two members of the House Republican Minority were excused absent.
Alaska faces a multibillion-dollar annual deficit, but it also owes some $800 million in tax credits promised to oil and gas drillers for work done in Alaska. Another $200 million in claims is expected under a program the Legislature ended last year.
“We can fulfill our side of this bargain,” said Rep. Jason Grenn, I-Anchorage and the lawmaker carrying the bill in the House for Walker.
Rather than stick to a schedule of payments that could require spending hundreds of millions of dollars in the next few years, HB 331 restructures the debt.
“I think it’s better to have something that is predictable,” said Rep. Andy Josephson, D-Anchorage, who said the restructured system creates a “disciplined, sustainable, kind of predictable formula” for repayments.
If approved by the Senate and Walker (something expected since Walker drafted the original version), HB 331 will allow the state to borrow money and pay the credits immediately. The state will make interest and principal payments later on.
Instead of owing $206 million in the fiscal year that starts July 1, the state might owe as little as $27 million, reducing the annual deficit.
Ordinarily, borrowing money to pay a debt will incur greater costs later on, but the state believes it can encourage oil and gas companies to accept less than they are owed in order to be paid more quickly.
Several of the companies have leveraged their expected tax credits (which can be sold to other companies), and are facing severe financial straits because the state has delayed payment.
Ken Alper, tax director of the Alaska Department of Revenue, said after the vote that none of the 37 companies expected to receive credits has said they will refuse to participate in the revised payment plan.
One potential drawback lies in the legal basis used for the plan. The Alaska Constitution prohibits borrowing money without voter approval, except under specific circumstances. To get around that restriction, HB 331 creates a shell corporation that will borrow the money and handle the transactions on behalf of the state. Payments to that corporation, authorized on an annual basis by the Legislature, would be the corporation’s only revenue.
That raised flags with the Legislature’s legal department. In a memo last month, attorney Emily Nauman wrote that there is a “substantial risk” that a court could find the approach unconstitutional, if it were challenged.
Since that memo, the bill has been rewritten, but Nauman told the House Finance Committee on Tuesday that she still feels there is a constitutional risk.
The Alaska Department of Law has offered a competing interpretation of the constitution and says that the idea is legally sound.
In either event, the advancement of HB 331 was seen as a key request by members of the House’s Republican minority. This year’s state operating budget requires spending some $700 million from the Constitutional Budget Reserve, and using the reserve requires 30 votes in the Alaska House of Representatives. The House’s majority coalition has only 21 members, so the budget will require minority support.
House Minority Leader Charisse Millett, R-Anchorage, said earlier this week that members of her caucus have different opinions on HB 331 (something evidenced Thursday by the vote tally) but that reducing the state’s budget is a priority.
HB 331 will do that by reducing the immediate need for cash, and leaving the door open for minority support of the budget, if lawmakers so choose.
• Contact reporter James Brooks at firstname.lastname@example.org or 523-2258.