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Juneau man sues state, says selling bonds to pay oil companies is an illegal gimmick

A longtime Juneau resident Monday sued the state of Alaska, challenging Gov. Bill Walker's newly passed legislation that would allow the state to sell up to $1 billion in bonds to pay tax credits owed to oil companies.

The complaint, brought by Eric Forrer in Juneau District Court, says the legislation would create an unconstitutional "bond debt scheme." It says lawmakers and the Walker administration need to do their job, "making the difficult choices of balancing the budget without gimmicks and opaque measures."

The governor introduced the measure to establish a corporation to raise money so the state can rapidly pay the tax credits it owes. Facing multibillion-dollar deficits, the state has sharply reduced the payments to small oil and gas companies in recent years. That has hurt the companies and hindered projects, the companies have said.

The Alaska Department of Law has determined that the plan, which would allow bonds to be paid "subject to appropriation" by the Legislature, is constitutional.

But the Legislature's nonpartisan legal division said in April that "substantial risk" exists that the legislation might be found unconstitutional. The division questioned whether the bonds could legally be serviced only by annual legislative appropriations.

The bill passed Friday. Walker has not yet signed it into law. The state and Revenue Commissioner Sheldon Fisher are named as defendants. They are required to reply to the court within 40 days after receiving a summons issued Monday.

The state has phased out nearly all of its cash tax credit programs. But oil and gas companies are still owed about $800 million.

The companies have said they've borrowed heavily from banks to pursue oil and gas projects in Alaska. They've argued that the scaled-back payments made by the state each year, from more than $500 million to less than $100 million in recent years, have hurt their ability to raise more financing to support new projects.

Forrer, a retired custom-home builder and former University of Alaska regent, said Monday that he filed suit after discussions with longtime friends in Juneau concerned about the measure.

"It's 100 percent homegrown," said Forrer, 72. "It's a lawsuit being made in the spirit of the public interest."

Juneau attorney Joe Geldhof has agreed to offer much of his time to help, Forrer said.

Forrer said he fears the legislation could set a precedent allowing the state to issue future debt unlawfully. The financially struggling state should pay its obligation to the industry, but over time, meeting the legally required minimum payments as it has been doing in recent years, he said.

"We're struggling with infrastructure issues and teacher issues, and the oil companies can walk off with a billion dollars," he said.

Kara Moriarty, president of the Alaska Oil and Gas Association representing the industry, said Tuesday that the group has not had a chance to meet and discuss whether it would seek to support the state in the lawsuit.

"From our companies' standpoint we hope there's a quick resolution to the lawsuit so the companies know one way or another whether there will be a bonding mechanism or not," Moriarty said.

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