Bonding for tax credit payments
being heard in House Finance
The House Finance Committee is continuing hearings on two major oil and gas related bills, its own oil tax proposal, House Bill 411, and HB 331, the administration’s proposal to bond for payment of oil and gas tax credits.
HB 411 is set for another hearing April 26, after this issue goes to press.
Amendments were due April 25 for HB 331.
The constitutionality of the bonding proposal has been a big issue in committee deliberations. It was raised by Sen. Bill Wielechowski, D-Anchorage, in March hearings in the Senate Resources Committee on the Senate version of the bill and became a focal point for House Finance with memos from the Division of Legal and Research Services in the Legislative Affairs Agency and the Department of Law front and center.
At a lengthy hearing April 21 Jerry Luckhaupt, revisor of statutes, reviewed concerns legislative attorneys have that bonds proposed in the bill, which would enable a quicker payoff of tax credits based on a discount to cover the cost of the bonding, would be found unconstitutional.
Assistant Attorney General Bill Milks told the committee that the Department of Law sees the debt proposed as constitutional because these are subject to appropriation bonds not general obligation bonds. He noted that while the Legislature’s attorneys are not prepared to say the bonds are legal, it is clear to the department that they are.
AG opinionIf the bill passes the Department of Law would have to issue an opinion certifying that the bonds are lawful, Milks said. And the state’s bond counsel has to look at Alaska law independently and certify that the bonds are lawful.
Douglas Gough of Orrick, Herrington & Sutcliffe, the state’s bond counsel, said without bond counsel’s unqualified opinion that the bonds are lawful they won’t be purchased. He said his firm worked closely with the Department of Law on the constitutional issue. Gough said that as a firm Orrick earns its reputation on its unqualified opinions and takes them very seriously. Based on Alaska Supreme Court precedent he said the firm is comfortable that the bill is constitutional and if it is enacted, expect to be able to render to the state and the bond market our opinion that the bonds would be debt of the bond corporation established in the bill, not of the state of Alaska.
Deven Mitchell of the Department of Revenue, the state’s debt manager, noted that when the state gets ready to sell bonds established in this legislation, buyers will ask about the dissert and may decide they need to be paid a little extra for the bonds.
Revenue Commissioner Sheldon Fisher, answering committee questions in an April 24 hearing, said the bond documents will say multiple times that payment of the bonds is subject to appropriation because securities laws require facts to be disclosed. He also said that subject to appropriation bonds are typically a little more expensive. But, he noted, payment would be a very serious commitment. It is subject to appropriation, but failure to pay would impact the state’s credit rating and ability to access capital.
Fisher said he didn’t think constitutionality was an issue. Alaska issued this kind of debt as a territory, he said, and as a state, and the Department of Law has viewed this type of debt as constitutional under many governors.
As for the lack of an immediate attorney general’s opinion, Fisher said it couldn’t be provided to legislators immediately because of the process the attorney general has to go through to issue an opinion, which has almost a quasi-effect of law. He also noted that bond counsel will require an AG opinion to be able to issue bonds.
HB 411HB 411, the Finance Committee’s oil and gas tax bill, is on the committee’s schedule for April 26, after this issue of Petroleum News closes.
A letter of intent from Rep. Paul Seaton, R-Homer, and Rep. Neal Foster, D-Nome, the committee’s co-chairs, said the intent of the committee is to forward HB 411 to the Legislative Oil and Gas Working Group established last year with the passage of HB 111. The letter, posted in advance of the hearing, requests the working group to use the three consultants available to the Legislature for an array of perspectives, and to submit a report and “proposed legislation for an effective long-term tax regime” for the state to the Legislature by Jan. 1, 2019.
“We request that the working group consider HB 411 as a basis for a proposed taxation system and consideration separation of oil and gas for expense and tax calculation,” the letter says.
- KRISTEN NELSON