The odds are not in their favor. The State of Alaska is against them. So is Gov. Bill Walker. The Alaska Legislature doesn’t side with them, and neither does the state’s oil and gas industry.
Nevertheless, Eric Forrer and Joe Geldhof have launched a lonely attempt to defeat a plan that calls for Alaska to borrow up to $1 billion to pay a debt owed to oil and gas drillers. Geldhof, Forrer’s attorney, filed a lawsuit last Monday.
“I am trying to send a message,” Forrer said in a Tuesday morning interview. “We’re awake. You’re not going to skate on this one.”
Forrer, who came to Alaska in 1962 as a teenager, said the lawsuit comes from “a sense of outrage, which has been slowly building since the pipeline days. With historic perspective, the state of Alaska got rolled by the oil industry.”
House Bill 331, proposed by the Walker administration and approved by lawmakers on May 11, is an example of that, but for him, it was the breaking point, he said.
If signed into law by Walker (something that is expected since Walker’s team proposed the bill), the state would be able to go to global bond markets and ask for up to $1 billion to pay a tsunami of obligations caused by a generous state incentive program and a series of budgetary vetoes by Walker over the past few years.
Debt piled up
Between 2003 and 2017, the state offered a series of tax credit programs to encourage oil and gas drilling. Perform certain work, and a company would get a tax credit from the state. The credit program intensified after early 2010, when the Legislature gave up on the idea that the credits would ever be offset by new oil revenue. At the time, Southcentral Alaska was in danger of a natural gas shortage, and lawmakers believed access to new gas was more important than balancing the books.
Through this year, the state has paid $3.6 billion in tax credits. As of Dec. 31, the state owes another $806 million, with another $200 million expected. (Some companies have yet to submit their receipts.)
“We did the work, and then we turned in the receipts for that work because it was eligible for legal tax credits,” Kara Moriarty, director of the Alaska Oil and Gas Association told the Empire Tuesday in an interview.
The credits were supposed to be repaid on a particular schedule, but when the state’s deficit ballooned, Walker vetoed more than the minimum payments. That put companies in a pinch. Many had already borrowed money from banks with the expectation that those credits would arrive.
One company has already declared bankruptcy. Others may follow.
“Now we’re just waiting to get paid, and frankly, the (Walker) administration created part of this problem by vetoing part of the credits,” Moriarty said.
HB 331 spreads out the cost of repaying those credits, but it does so in a way that Geldhof and Forrer allege is constitutionally questionable. The state will borrow the money, then repay the loan over time. The Alaska Constitution allows debt for only a few specific purposes, and oil tax credits aren’t included. To get around that problem, HB 331 creates a state corporation (the Alaska Tax Credit Certificate Bond Corporation) to borrow the money and pay the credits. The corporation’s revenue will be money appropriated by the Legislature.
“Sorry, ain’t going to fly,” Forrer said.
One of the Alaska Legislature’s own attorneys says there is a “substantial risk” that the approach is unconstitutional, but the Attorney General’s office has offered its own legal opinion stating that there is no constitutional conflict.
The AG’s office went further, saying that if the idea behind HB 331 is ruled unconstitutional, it could endanger other programs that use similar borrowing techniques. Geldhof disagrees and says those programs are distinct enough that “a first-year, second-year law student could distinguish them.”
Rural and urban conflicts
Forrer has never been involved in this kind of lawsuit and doesn’t have a law degree or legal background, he said. Born in Colorado Springs, he traveled the country with his parents while growing up. His father was a teacher with the Bureau of Indian Affairs, and he spent his early years on American Indian reservations before ending up in Alakanuk, a village at the mouth of the Yukon River.
“The nature of the people was completely different from the mood on an Arizona reservation, which was downbeat,” he said.
In Alakanuk, the people were “running around, bright-eyed, in open-topped skiffs with rifles and nets and a king salmon fishery going. They said, ‘Come with me, I’ll show you the whole world,’ and they did. As a 15-year-old kid, I just bought into it,” Forrer said.
In a series of stories he shared, one theme repeatedly came up: Urban and corporate interests triumphing over those of rural Alaskans. It’s something repeating with HB 331 and the bonding proposal, the stories suggested.
He became a commercial fisherman, and though his parents left after four years, he stayed. He advocated on behalf of the village during a labor dispute, using a portable typewriter to send letters to Anchorage and Juneau. He wrote three books, became a carpenter, and was appointed by then-Gov. Wally Hickel to a subsistence advisory board that attempted to avert a federal takeover of the state’s subsistence hunting program. It failed.
He didn’t work on the pipeline, but he knew people from Southwest Alaska who sought expensive welding training, only to wait in vain for jobs that went to welders from Oklahoma and Texas.
In 1989, Gov. Steve Cowper appointed him to the University of Alaska Board of Regents. Talking to the Empire, Forrer recalled a time when the university system sought to borrow money to pay for deferred maintenance projects. To a certain degree, it would have been similar to the program proposed now: The bonds would have been repaid with appropriations from the Legislature and with tuition fees. The idea was turned down by the Legislature.
‘You have to fight these things’
Maria Bahr, an attorney with the Alaska Department of Law, confirmed that the state was served with the lawsuit last week. By email, she said the state is reviewing the case and expects to respond no later than June 25. The state does not comment on ongoing litigation, she wrote.
Geldhof and Forrer each said they would like to see Walker veto his own bill, call the Legislature into special session, and start over. They have no problem with paying the state’s tax credit debt; they have a problem with how it’s been done.
A spokesman for the governor, reached by email Tuesday, referred the Empire to a press release in which Walker praised the Legislature’s passage of the bill.
“I’m pleased the Legislature is fulfilling Alaska’s past promises to pay tax credits to small independent explorers in exchange for investing in our state. This will close out old debts to oil and gas entities, help companies invest in their operations, and put Alaskans to work,” the governor wrote in the statement.
Forrer and Geldhof say it makes no sense for the state to borrow money at interest to pay a debt that is not collecting interest.
“We have this debt and we’re not paying any interest on it. There’s a significant amount of interest on a billion dollars worth of debt,” he said. “This whole thing doesn’t pass the smell test.”
Furthermore, he said, there’s a significant danger in the proposal. If the procedure is upheld at court, the state could use it to borrow money for almost any program, not just the oil and gas tax credits.
“The language and the take on this thing is kind of a sleeping monster. It’s a sleeping dragon, and it will come back to haunt us,” he said.
Geldhof said he doesn’t know how the lawsuit will turn out.
“I’m old enough to say I don’t know how this lawsuit is going to go,” he said. “It could go either way.”
“Frankly, (Forrer would) rather be up on his jet boat,” he added. “I would rather be walking on the beach, but you have to fight these things when they come up.”
• Contact reporter James Brooks at jbrooks@juneauempire.com or 523-2258.
