123rf.com Stock Photo

123rf.com Stock Photo

State may borrow $1 billion to pay oil debt

The Alaska Legislature is considering a proposal to borrow up to $1 billion from global markets to cover a debt it owes to oil and gas companies.

While the request might be a tough sell to Alaskans aware of the state’s multibillion-dollar annual deficit, members of Gov. Bill Walker’s administration say the borrowing could be a way to reduce that deficit at the expense of some longer-term risk.

In a presentation Wednesday to the Senate Resources Committee, Revenue Commissioner Sheldon Fisher and tax division director Ken Alper laid out the details of Senate Bill 176, the legislation behind the governor’s plan.

“The large, overarching goal of this is to provide additional stimulus into the economy,” Fisher said, then went on to explain the fiscal implications.

Between 2003 and 2017, the State of Alaska promised billions of dollars in tax credits to smaller oil and gas companies who pledged to drill for oil and gas in Cook Inlet and the North Slope. After petroleum prices plunged, the state could no longer afford the program, and lawmakers ended it with a pair of bills in 2016 and 2017.

While new credits are no longer available, the old credits are still around.

Under previous law, the state did not have to pay its debt immediately: Payments could be spread across years, and for the past several years, the state has been paying only the minimum amount on what it owes. This has left a huge unpaid debt that will come due starting this year. As of Dec. 31, the state owes $806 million in credits. If estimates hold true, the debt is closer to $1 billion, once expected applications are filed this year.

Without any action by the Legislature, that debt will be paid in installments. In the fiscal year that starts July 1, the state will be required to pay $206 million. In the following fiscal year, the payment is $167 million. Payments generally fall after that, but remain above $100 million per year for several years.

Fisher told lawmakers that when he was considering whether to become commissioner of revenue, Gov. Walker told him that he wanted to see the debt resolved.

What Fisher and the governor came up with was SB 176. Under the proposal, the state would borrow money to pay the credits. In order to receive that money immediately (instead of years down the line), oil companies would agree to take a haircut on their payments, as much as 10 percent under some circumstances.

That haircut would compensate for the fact that the state would have to pay interest on the money it borrowed.

“It’s almost free money, if you will, to be able to accelerate the payment into the current time period,” Fisher said.

“So far, I have not met anyone who does not want to participate,” Fisher said, explaining that many companies have taken out loans against their expected credits, and are in desperate need of cash.

Sen. Natasha von Imhof, a member of the resources committee, pointed out the principal risk to the state: If interest rates rise between the time the program is approved and the time the state borrows the billion dollars, it might end up paying more in interest than it expects.

“Hopefully, you’re not going to go underwater,” she said.

Fisher responded that the state has budgeted a 1.5 percent interest-rate “cushion” to guard against that possibility, and if lawmakers approve the bill, the state won’t wait around — it will seek to borrow the money in August.

Sen. Bert Stedman, R-Sitka, pointed out that the program doesn’t solve the debt, it merely spreads it out over years.

Instead of $206 million in the next fiscal year, the state would pay just $25 million, and while payments would escalate after that, they would extend for more than a decade.

“I’m concerned we’re just shifting this problem to the next governor or the governor after,” he said. “If the current governor gets re-elected, the next governor, if he’s elected twice, he’s got to deal with it — if he’s re-elected — his full two terms.”

He also said he was unhappy that the governor took this idea for granted in his proposed budget for the next fiscal year.

That inclusion puts lawmakers in a pinch because the governor’s budget already includes the savings SB 176 suggests. If lawmakers turn down Walker’s proposal, they have to come up with an additional $180 million in revenue, the difference between the required annual payment under the existing system and the payment under SB 176.

“The point is, we would have to appropriate more if we didn’t do this,” Fisher said.

He added that if lawmakers are tempted to reinterpret existing law as an alternative to passing SB 176, they shouldn’t. The state’s credibility is at stake, he said, because Alaska has promised to pay these credits. Failing to pay them on schedule would “send a signal to the industry” that Alaska can’t be trusted.

“I think it is frankly dangerous to contemplate a re-interpretation of the way that statutory minimum has been calculated for a number of years,” he said.

SB 176 remains in the Senate Resources Committee.


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


More in News

(Juneau Empire file photo)
Aurora forecast for the week of March 25

These forecasts are courtesy of the University of Alaska Fairbanks’ Geophysical Institute… Continue reading

The aging Tustumena ferry, long designated for replacement, arrives in Homer after spending the day in Seldovia in this 2010 photo. (Homer News file photo)
Feds OK most of state’s revised transportation plan, but ferry and other projects again rejected

Governor’s use of ferry revenue instead of state funds to match federal grants a sticking point.

The Shopper’s Lot is among two of downtown Juneau’s three per-hour parking lots where the cash payments boxes are missing due to vandalism this winter. But as of Wednesday people can use the free ParkSmarter app to make payments by phone. (Mark Sabbatini / Juneau Empire)
Pay-by-phone parking for downtown Juneau debuts with few reported complaints

App for hourly lots part of series of technology upgrades coming to city’s parking facilities.

A towering Lutz spruce, center, in the Chugach National Forest is about to be hoisted by a crane Tuesday, Oct. 27, 2015, for transport to the West Lawn of Capitol Hill in Washington, D.C., to be the 2015 U.S. Capitol Christmas Tree. (Photo courtesy of the U.S. Forest Service)
Tongass National Forest selected to provide 2024 U.S. Capitol Christmas Tree

Eight to 10 candidate trees will be evaluated, with winner taking “whistlestop tour” to D.C.

Annauk Olin, holding her daugher Tulġuna T’aas Olin, and Rochelle Adams pose on March 20, 2024, after giving a presentation on language at the Alaska Just Transition Summit in Juneau. The two, who work together at the Alaska Public Interest Research Group’s Language Access program, hope to compile an Indigenous environmental glossary. (Photo by Yereth Rosen/Alaska Beacon)
Project seeks to gather Alaska environmental knowledge embedded in Indigenous languages

In the language of the Gwich’in people of northeastern Alaska, the word… Continue reading

The room where the House Community and Regional Affairs Committee holds its meeting sits empty on Tuesday. A presentation about an increase in the number of inmate deaths in state custody was abruptly canceled here. (Claire Stremple/Alaska Beacon)
Republican lawmakers shut down legislative hearing about deaths in Alaska prisons

Former commissioner: “All this will do, is it will continue to inflame passions of advocacy groups.”

(Michael Penn / Juneau Empire file photo)
Police calls for Monday, March 25, 2024

This report contains public information from law enforcement and public safety agencies.

Employees at the Kensington Mine removing tailings from Johnson Creek on Feb. 17 following a Jan. 31 spill of about 105,000 gallons of slurry from the mine, although a report by the mine’s owners states about half slurry reached the creek 430 meters away. (Photo from report by Coeur Alaska)
Emergency fisheries assessments sought after 105,000-gallon tailings spill at Kensington Mine

Company says Jan. 31 spill poses no risk to Berners Bay habitat, but NOAA seeks federal evaluation.

Dozens of people throw colors in the air and at each other during a Holi festival gathering Monday night outside Spice Juneau Indian Cuisine. (Mark Sabbatini / Juneau Empire)
Holi festival in Juneau revives colorful childhood memories for some, creates them for others

Dozens toss caution and colored cornstarch to the wind in traditional Hindu celebration of spring

Most Read