House Bill 331, Governor Bill Walker’s bill to pay off the outstanding owed oil tax credits he vetoed in 2015, passed both the house and senate this session. Senator Bill Wielechowski (D – Anchorage) was strongly opposed to the bill. He claimed it was unconstitutional based on an opinion from a legislative attorney. Right after the bill passed the legislature, a lawsuit was filed. You can see it here:

Forrer v. State PDF COMPLAINT (May 14 2018)

It will be up to the courts to decide whether or not the bill is constitutional. But it is unlikely that the administration would introduce a bill that they thought was unconstitutional. The bill will result in all the existing owed oil tax credits, totaling nearly $1 billion, being paid by issuing bonds. The companies have agreed to a discounted amount of what they are owed. The saved money will go to pay the interest on the bonds. The companies will then be able to pay off existing debt and be able to invest more money in oil exploration and production in Alaska. The bill is revenue neutral, meaning it will not cost the state any more money.

Although the credits are subject to appropriation, for many years they were paid in full when the companies submitted them. The exploration credit program was started when Sarah Palin was governor. It was intended to get smaller, independent operators in Alaska, and it worked. Companies like Repsol, ENI, and many others came to Alaska because of the credits. The legislature ended the exploration credit program in 2016. When Walker vetoed the payments in 2015, and only authorized the statutory minimum, many of the independent companies were seriously affected. They had already spent the money. The precedent set was they would get paid when they submitted the credits. The crash in the price of oil in 2014 resulted in a multi billion dollar deficit.

Eric Forrer, a retired carpenter who filed the suit, said it is a public interest lawsuit and no one else is behind it. He does not dispute the money is owed, he just questions the means of issuing bonds to pay off the liability. He believes it is unconstitutional. His attorney, Joe Geldhof, echoed those comments. They would have no issue with the state cutting a check and paying off the liability or continuing to pay the statutory minimum amount. Geldhof said he would like Walker to veto his own bill. Then call back a special session of the legislature to appropriate the money to pay off the liability. I would give that a zero percent chance of happening.

With the price of Alaska Crude approaching $80/barrel, Alaska is in a good position to swing back from the recession caused by the crash in oil prices in 2014. The majority of exploration on the North Slope is done in the winter. But the planning happens in the summer and fall. This lawsuit will only further delay more investment for the upcoming exploration season. Who knows when it will be heard or decided, and regardless of the decision an appeal by the losing side is likely. It will probably end up in the Alaska Supreme Court. Hopefully the case is decided quickly. The extra uncertainty only further delays more investment, which will result in more oil production and jobs for Alaskans.