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Legal battle erupts over credit bonding
Two oil tax bills in House; DEC spill fund bill in House Rules; extension of AIDEA bonding for Interior LNG passed Senate, in House L&C
Kristen Nelson Petroleum News
As the Alaska Legislature winds down, some oil and gas related bills appear to remain in the mix while others are probably stalled.
The administration’s proposal to bond for payment of the cashable credits owed by the state, primarily to small oil and gas companies, is in House Finance (House Bill 331) and Senate Finance (Senate Bill 176) but it faces a question of whether such bonding would be constitutional.
The constitutionality issue, raised by Sen. Bill Wielechowski, D-Anchorage, who sits on Senate Resources, which heard the bill earlier in the session, are based on a legal memo from the Legislative Legal Division, authored by the division’s deputy director, Emily Nauman, which says “there is substantial risk that a court may determine that SB 176 is unconstitutional.”
The Alaska Department of Law disagrees, saying in an April 18 press release that the legal issues were reviewed.
“The proposed tax credit bonds in SB 176 are not general obligation bonds under the Alaska Constitution,” Alaska Attorney General Jahna Lindemuth said in the release. “We’ve carefully reviewed the legal issues and are confident that these bonds are lawful under Alaska law.”
“The Alaska Constitution expressly prohibits the legislature from bonding for state debt, and the two instances that are allowable must be approved by the voters,” Wielechowski said in an April 18 press release. “This bill seeks to avoid the constitutional ban by creating a pass-through state corporation whose sole purpose is to put the state in debt to pay the oil companies,” he said.
The Department of Law said the legislation creates the Alaska Tax Credit Certificate Bond Corp. to “authorize the issuance of bonds to pay off the state’s tax credit liability in a lump sum rather than paying it down incrementally over the coming years,” and notes that the state’s current obligation is roughly $800 million.
“Before the Governor proposed the legislation, the Department of Law in conjunction with outside bond counsel carefully reviewed the legality of the bill under Alaska law, including the constitutional limitations on state debt.”
The department said it “disagrees with the legislative counsel’s opinion published today.”
The alternative to the bonding proposal is to continue paying off this debt on an annual basis.
AIDEA bonding extension SB 125, a one-page bill, would extend the expiration date of the Alaska Industrial Development and Export Authority’s ability to bond for a liquefied natural gas production system and natural gas distribution for an Interior energy project from July 1 of this year to July 1, 2023.
It was sponsored by Senate President Pete Kelly, R-Fairbanks, and co-sponsored by Sen. Click Bishop, R-Fairbanks, Sen. Donny Olson, D-Golovin, and Rep. Scott Kawasaki, D-Fairbanks. It passed the Senate 19-0 in February and is in House Labor and Commerce, along with the companion House Bill 261, sponsored by Rep. Steve Thompson, R-Fairbanks, and co-sponsored by Kawasaki.
DEC fine increases, oil tax increases HB 322, by the House Resources Committee, would increase fines which the Department of Environmental Conservation can impose for oil spills. There is no companion bill in the Senate. It was amended in House Finance and is in House Rules.
Rep. Andy Josephson, D-Anchorage, co-chair of House Resources, said in introducing the bill that fines had not been increased since they were imposed and that increases in the bill were based on inflation. The bill also provides for increasing the fines in the future based on changes in the consumer price index.
Two oil tax bills were heard in the House. Neither has moved out of its first committee, which, this late in the session probably means that they are not going to move through the House.
If either or both passed the House, they seem unlikely to pass the Senate.
HB 288, by House Resources co-Chair Geran Tarr, D-Anchorage, co-sponsored by Josephson and Rep. Paul Seaton, R-Homer, co-chair of House Finance, proposes an increase in the minimum tax on North Slope crude oil production. The bill originally proposed an increase from 4 percent to 7 percent; the bill was amended to a stepped increase, based on the price of oil, with 4 percent at $25-$40 per barrel (North Slope crude oil price); to 5 percent between $40 and $55; 6 percent between $55 and $65, and 7 percent above $65. The bill is still in House Resources.
HB 411, a House Finance Committee bill, was introduced April 6, and has had four hearings in that committee.
In introducing the bill, Seaton said the tax increase provisions in HB 411 were almost identical to those in HB 111, but were dropped from that bill before it passed the Legislature last year, leaving just the portion of the bill which addressed credits. He said tax increases in HB 411 were aimed at getting the state its fair share of wealth from oil and gas production.
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