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Dave Donley defends bill to limit municipal debt
Steve Sutherlin
Senate Bill 186, which limits municipal debt, is designed to restore the intent of the Legislature when it adopted proposals in 1974 to prevent the monopolizing of oil and gas property wealth by any one community, Sen. Dave Donley told the Alaska Support Industry Alliance Dec. 13. The North Slope Borough, Donley said, has circumvented the Legislature’s intent, using bits and pieces of two laws to monopolize taxes on oil and gas assets. Donley, Senate Finance Committee co-chairman, made the remarks as part of a state budget speech.
North Slope Borough Mayor George Ahmaogak told the Alliance Oct. 25 that SB 186 would prevent any new construction projects and make it nearly impossible to repair and maintain existing infrastructure in the borough (see Nov. 4 issue of PNA).
Donley said the bill does not eliminate the borough’s ability to sell bonds. Even if the borough exceeds the proposed municipal bonding cap of $15,000 per capita, it would be able to issue new bond debt of $1,000 per capita per year. The cap in SB 186 is reasonable and would not create a hardship for the borough, he said, because it is 20 times the statewide average, and it is phased in over 10 years.
Donley said the North Slope Borough has the highest debt load in the state yet it continues to issue new debt each year, although the 2000 Fitch bond rating report states that the borough’s infrastructure is fully funded. The borough also has a savings account of $470 million as a cushion, he said.
Bill not source of rural-urban divide Donley said his bill does not create a rural-urban divide in the state.
“With less than 2 percent of the state’s population, the North Slope Borough hardly constitutes rural Alaska,” Donley said.
The North Slope Borough contains 79 percent of the state’s taxable oil and gas property. he said, and the monopolization of the revenue from those assets by the borough is unfair to the rest of the state, rural and urban.
“It’s disappointing to hear people make allegations of a rural-urban divide, rather than making a proposal for reasonable compromise,” Donley said, adding that the borough’s allegations were based on “sensationalism and name calling, rather than talking about the facts. … It behooves us as Alaskans to reach a reasonable compromise.”
Donley said the modifications contained in the bill were based on testimony provided to the Senate, and that the borough had notice of hearings on the bill.
Bill rose from lawsuit The Borough of Ketchikan sued in 1999 because the North Slope Borough was monopolizing oil asset taxes, Donley said. After more than four years of litigation, the court directed the Legislature to address the issue.
SB 186 is designed to address the unfair distribution of oil and gas property taxes, he said. In addition to limiting bond exposure, the bill also gradually reduces the mill rate on oil and gas property for municipalities with a per capita assessed value of all taxable property over $500,000, Donley said in the sponsor statement for SB 186. In 2000, the North Slope Borough had $1,160,818 per capita assessed property. The next highest community is Valdez, with $236,000. The statewide average is $81,548.
A 1973 law that allows the state to tax oil and gas property also grants a state tax credit to the property owner for taxes paid to a municipality. SB 186 would allow more tax money to flow to state coffers for the benefit of the entire state, Donley said.
SB 186 is unlikely to result in withdrawal of support for oil development on the part of the borough, Donley said, because the borough would continue to receive hundreds of millions of dollars in local taxes and because of that the residents in the borough would continue to have an incentive to take a “leading role in the energy future of Alaska.”
Concern about default Donley said he was also concerned about liability for the state if the North Slope Borough was to default on its debt.
“If NSB was left alone and unchecked in the area of debt issuance — and not if but when the oil fields dry up — the bond market believes the state would certainly have a moral, if not legal obligation to bail out the NSB from under its bond debt,” Donley said in a statement. Donley said the Fitch bond rating agency gave the borough an A minus on a scale that begins at AAA, not an A as Ahmaogak claimed in his remarks to the Alliance.
According to the state Department of Revenue, in June 2000 the North Slope Borough had the highest per capita general obligation debt in the state at $62,600. Donley said this amount is 65 times the statewide average. He said senators are concerned about the borough’s long-term ability to support high debt levels because repayment of the debt is based on a non-renewable resource.
Vote a directive for fairness, balanced fiscal policy Donley said a September 1999 vote against new taxes indicates Alaskans don’t want to be asked to pay taxes until the Legislature succeeds in achieving efficient state government.
“SB 186 is one essential first step to show people you have a fair and efficient state government,” Donley said.
He said 20 percent of Alaska pays nothing locally for education, and that he won’t ask Anchorage to pay more taxes until fairness is restored.
“We must get back to fairness if we’re going to ask Alaska to pay taxes, ” Donley said.
“After over 20 years, it’s time to take a step back and say, ‘what’s the right way to do this?’”
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