A legislative legal opinion obtained by the Alaska Landmine questions the constitutionality of the Alaska Railroad’s plan to obtain a $65 million commercial loan to replace their passenger dock in Seward. The August 20 opinion was requested by Representative Kevin McCabe (R – Big Lake), chair of the House Transportation Committee. It was disseminated to the members of that committee. 

The loan from Capital One, guaranteed by Royal Caribbean, was approved by a 5-2 vote during an August 1 special meeting of the Alaska Railroad’s board of directors. Interestingly, the two commissioners who serve on the board of directors – Commerce Commissioner Julie Sande and Transportation Commissioner Ryan Anderson – voted no. 

The special meeting of the Railroad board was prompted by Governor Mike Dunleavy’s (R – Alaska) veto of the five bills the House passed after the constitutional end of session in May. The special meeting occurred on the same day Dunleavy vetoed the bills, indicating the Railroad knew the veto was coming.

After initial publication, the Railroad told the Landmine, “We had already come to the conclusion that HB 122 was not legal due to the legislature’s late passage, and even if the Governor had signed the bill we would not have been able to issue the bonds. The timing on the special board meeting was purely coincidental to the Governor’s vetoes.”

One of the vetoed bills, House Bill 122, was a bill to allow the Railroad to issue an additional $75 million in revenue bonds for the replacement of their dock in Seward. This was in addition to $60 million in bonds the Legislature already approved. 

Article IX, section 8 of the Alaska Constitution states: 

No state debt shall be contracted unless authorized by law for capital improvements or unless authorized by law for housing loans for veterans, and ratified by a majority of the qualified voters of the State who vote on the question. The State may, as provided by law and without ratification, contract debt for the purpose of repelling invasion, suppressing insurrection, defending the State in war, meeting natural disasters, or redeeming indebtedness outstanding at the time this constitution becomes effective. [Amended 1982]

The legislative legal opinion states, “Despite the Railroad’s statutory authority to borrow money, obtaining traditional forms of commercial loans to finance the dock replacement likely violates the state debt restrictions in the Alaska Constitution.” 

The Railroad says that because they have a long history borrowing money, there is no constitutional problem. However, if challenged the courts would ultimately decide that question.

The Railroad provided the Landmine with four prior legal opinions which state they do have the authority to borrow money without legislative approval.  

1. A 1984 attorney general opinion 
2. A 1985 attorney general opinion 
3. A 1989 opinion from the Railroad in-house counsel 
4. A 1999 attorney general opinion 

The legislative legal opinion references the 1999 attorney general opinion:

In a 1999 opinion, the attorney general stated that the Railroad interprets these statutes “as providing express authority for it to borrow money separately from its authority to issue bonds.” Assuming the Railroad’s interpretation is correct, the Railroad’s borrowing authority is still constrained by the Alaska Constitution. Therefore, the Railroad may borrow to the extent permitted by the Alaska Constitution, including (as discussed below) by issuing revenue bonds, pursuing interim borrowing, and entering into lease-purchase agreements.

The legislative legal opinion references a 2020 Alaska Supreme Court decision in Forrer v. State. This case involved a plan by former Governor Bill Walker to issue revenue bonds through a new state corporation to pay outstanding oil tax credits. Ultimately, the Supreme Court ruled that Walker’s plan was unconstitutional.

Forrer v. State established additional guidelines for what is considered debt under the Alaska Constitution. The legislative legal memo states that the Railroad’s plan to finance the Seward dock replacement does “not fit neatly into any category of constitutionally permissible state borrowing.” 

Juneau attorney Joe Geldhof represented Forrer in the case against the state. After reviewing the legislative legal opinion, he told the Landmine: 

Having reviewed the opinion by the Legislative Affairs Agency regarding the proposed incurrence of debt by the Alaska Railroad, it is correct to say that there are some problematic constitutional issues in play given the current proposal to borrow big for the new cruise ship dock in Seward.

Alaska’s constitution is very clear that incurrence of public debt is not favored and that if debt is to be incurred, it must be authorized by the legislature and the citizens or in a case where revenue bonds are justified. If revenue bonds are proposed, there is still the issue of whether issuance of the bonds has been given, something that might be problematic in the current case being floated by the Alaska Railroad.

The desire to have the Alaska Railroad incur debt in order to build a new cruise ship terminal in Seward likely stemmed from trying to shave costs for financing the proposal. The project can probably go forward without any need for pubic debt to be in the mix, which would eliminate the constitutional issues discussed in the memorandum by the Legislative Affairs Agency. All it takes is a bit of creativity and willingness to stop using the public treasury as a trough for funding.

For the project to be go through, Governor Dunleavy needs to sign a letter with the IRS that is required for dock and wharf projects. A source in Governor Dunleavy’s office told the Landmine, “We are in the middle of determining whether or not we agree with the legislative legal opinion.” 

A spokesperson for the Railroad sent the following statement to the Landmine about the Seward dock replacement and loan: 

This project is a necessary replacement of a 60-year-old dock that is approaching the end of its useful life, and is critical to Seward’s continued ability to receive cruise ships. The new dock is also functionally paid for by the cruise industry, with a 30-year 140,000-passenger revenue guarantee from Royal Caribbean Group. That’s really important, as ARRC would not be able to take on a $137 million dock replacement without Royal Caribbean’s participation as an anchor tenant. It’s a significant private investment into needed public infrastructure, and does not constrain our resources or ability to pursue other projects.

Our initial plan was to fund the replacement of the dock and terminal with revenue bonds. When the Legislature failed to pass HB122 within the legal session, we turned to a backup option – securing a commercial loan, something we have done many times in the past for a variety of different projects. ARRC’s ability to borrow money is clearly stated in AS.42.40.250(26) and has been affirmed by multiple AG opinions, and we are confident that the loan structure for the Seward dock is legal, constitutional, and a good solution to support this important economic development project.

There is more to the story concerning HB 122. The House Transportation Committee amended the bill to authorize the Railroad to issue revenue bonds to finance the completion of the Port MacKenzie rail extension in the Mat-Su Valley. That provision was taken out by the House Finance Committee, but was added back in as a floor amendment. When the bill was sent to the Senate, the Port MacKenzie rail extension amendment was stripped out by the Senate Finance Committee. 

In a May 11 Senate Finance Committee hearing, Senator Bert Stedman (R – Sitka) commented that in the past the Railroad had said they did not want additional funding to complete the rail extension. Bill O’Leary, president & CEO of the Alaska Railroad, told the committee that the Railroad supports the completion of the rail extension, but that customers are needed before the project should be bonded. The committee ended up stripping the rail extension amendment from the bill. 

If the Senate had not removed the rail extension amendment, the bill would have gone straight to Governor Dunleavy as it would have been the same version passed by the House. But because the House version of the bill was amended by the Senate, it had to go back to the House for a concurrence vote. The concurrence vote in the House ultimately occurred after the constitutional session limit. Had the House voted on concurrence before the deadline, Dunleavy would have signed the bill into law. 

Representative McCabe told the Landmine, “It’s unfortunate the bonding for Port MacKenzie included in HB122 was removed. This dampened enthusiasm for the bill in the final hours of the session. While Seward dock bonding mattered to some, the Port MacKenzie extension was crucial to most of us due to the State’s energy and revenue pressures. Without it, many shifted focus to other pressing bills.”