Judge orders briefings in suit challenging tax credit bonds

Parties to a lawsuit challenging the constitutionality of the state’s plan to use bonds to pay off oil tax credits are going backward to move forward after the first oral arguments in the case were heard Oct. 1.

Alaska Superior Court Judge Jude Pate ordered former University of Alaska regent Eric Forrer and his attorney Joe Geldhof to submit a brief by Oct. 8 opposing the state’s motion to dismiss the suit on grounds it failed to state a claim upon which relief can be granted. State attorneys will then have until Oct. 12 to respond.

During the informal, conversational arguments that lasted about 90 minutes, Geldhof said that he and Forrer had not responded to the June 25 dismissal request because he read it as a motion for summary judgment.

“It went extensively into the merits of the state’s arguments and beyond what I, at least, thought was a dismissal for failing to state a claim,” Geldhof told Pate, while noting the state has not answered the original or amended complaints.

Both sides have made numerous other filings in the case, including a back-and-forth over Forrer’s request for jury trial to which the state objects.

Geldhof has insisted state attorneys have not followed normal briefing procedure in the case, which has greatly slowed its progress.

He also contends Walker administration officials, in debates over House Bill 331 in the Legislature, made differing statements over what kind of debt the tax credit bonds would be and how stringent an obligation the tax credits are to pay off in the first place.

Assistant Attorney General Margaret Paton-Walsh, in turn, questioned whether Geldhof understands what the state’s motion for dismissal means from a procedural perspective. She said the case raises “purely legal questions. What does the (Alaska) Constitution mean, what does the statute do; does the statute violate the Constitution?”

She continued to say that standard procedure would be for Forrer and Geldhof to file an opposition to dismiss and a cross motion for summary judgment.

The plaintiffs would generally move for an injunction to block the state from implementing the law, Paton-Walsh said, adding that in this case the suit itself is a de-facto injunction because its mere existence prevents the state from offering bonds to investors.

The state filed the motion to dismiss in order to move the case quickly, she said.

Geldhof said he believes it’s premature for rulings on his request for a jury trial because there are still outstanding issues of fact surrounding the specifics of the bonds that could be answered through the state answering the complaint, discovery or other ways.

For his part, Pate dismissed motions from both sides regarding a jury trial and fact discovery without prejudice, meaning they could be filed again at a later time. He also agreed with the state’s position that the lawsuit is a pretty straightforward one.

“I’m not interested in the factual arguments. I’m interested in the law, the language of the statute, the Constitution, that’s it,” Pate said.

However, he did not indicate how he might rule on the constitutionality of HB 331.

The lawsuit alleges the bond sale would commit the state to debt beyond the restrictions the Alaska Constitution puts on the Legislature’s ability to incur financial liabilities.

Administration officials contend the plan is legal because the 10-year bonds would be “subject to appropriation” by the Legislature, which the bond buyers would be aware of, and therefore would not legally bind the state to make the annual debt payments.

They would be sold by the Alaska Tax Credit Certificate Bond Corp., which would be established solely for the purpose of managing the bond money.

The state Constitution generally limits the Legislature to bonding for debt through general obligation, or GO, bonds for capital projects, veterans’ housing and state emergencies.

In most cases the voters must approve the GO bond proposals before the bonds are sold. State corporations can also sell revenue bonds, but those are usually linked to a corresponding income stream and only obligate the corporation to make payments, not the State of Alaska as a whole.

Geldhof called the entity — run by a small group of Revenue Department employees including Commissioner Sheldon Fisher and with no income other than the Legislature’s annual appropriations to pay the bond debt — a “shell corporation” that is part of an elaborate constitutional workaround.

State attorneys contend the plan is legal because it does not bind the state to pay the bonds, just the corporation, because paying the debt would be “subject to appropriation” by the Legislature and that risk is “baked into the price of the bonds” via a higher interest rate,” Paton-Walsh said.

The constitutional sideboards on borrowing are there to prevent the state from exposure to bankruptcy, which she said HB 331 does through the subject to appropriation stipulation.

“If you sued the State of Alaska on one of these bonds we would come in and move to dismiss and say we didn’t issue these bonds; they are not a debt of the state,” she elaborated.

Geldhof responded that the state’s position ignores the real-world implications to the state’s overall credit rating of not paying the debt.

“If the state defaults on these (bonds), if they don’t make the appropriation, there’s significant and obvious fiscal impacts on the State of Alaska, not just the shell corporation,” he said.

“The Legislature, in year two, three, four, essentially has what amounts to a gun to their head if they don’t appropriate this money because the credit rating of the State of Alaska is immediately harmed.”

Pate noted that state attorneys cited similar actions in other states that have been deemed constitutional, but asked Paton-Walsh if there was precedent in Alaska. She acknowledged there is not.

Pate pushed to refocus the attorneys near the end of the hearing, noting that Forrer needs to rebut the state’s dismissal motion.

“Heck yeah he’s stated some great claims,” he told Geldhof, “but can relief be granted under the law? That’s the issue.”

Geldhof insisted a finding that HB 331 is unconstitutional would be proper relief in the public interest case and stressed his belief that a ruling to dismiss the case for failure to state a claim would undoubtedly be overturned upon appeal.

Pate said he expects to issue a ruling on the matter in early November.

Elwood Brehmer can be reached at [email protected].

Updated: 
10/03/2018 - 10:31am

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