The Alaska Supreme Court has ruled unconstitutional a plan crafted under former-Gov. Bill Walker to use bonds to pay off oil and gas company tax credits owed by the state.

The 63-page ruling outlines that the system created by the Walker administration ran contrary to the state’s constitutional limits on incurring debt without the larger support of the people. The bill that created the bonding program, House Bill 331, was put to a vote of the Legislature but not the state as a whole. 

The Supreme Court opinion pointed to that as one of the program’s central failures.

“If the State intends to utilize financing schemes similar to HB 331 in the future, it must first seek approval from the people — if not through a bond referendum then through a constitutional amendment,” the opinion states.

The lawsuit against the state over the bond program was brought by Juneau resident Eric Forrer soon after the program was approved in 2018.

Friday’s ruling was unanimous. 

According to the Department of Revenue, there is still $743 million in outstanding tax credits that were eligible to participate in the tax credit bonding program. With the bonding program now rejected, the state will need to find another way to pay the remaining credits.

The bonding system was created by a vote of the Legislature in 2018. The House passed HB 331 approving the bonding on May 3 of that year. Most Fairbanks area lawmakers backed the bill, with the exception of then-Rep. Scott Kawasaki, D-Fairbanks, and former Rep. David Guttenberg, also a Fairbanks Democrat.

Now a senator, Kawasaki said Friday the Supreme Court ruling made him feel vindicated.

“These are some of the same legal cautions we said before,” he said. “It essentially would allow the governor to just take out a billion dollar credit card. Ultimately, I thought the bill was fatally flawed. We shouldn’t be paying our current debts down using a credit card. It just kicks it down the road for future generations to deal with.”

Having been wrapped in litigation over the matter for two years now, Forrer’s attorney, Joe Geldhof, told the Anchorage Daily News he was relieved to have the matter settled. 

Friday’s court ruling brought mixed reviewed from a number of other stakeholders. 

The group Vote Yes for Alaska’s Fair Share, which seeks to rewrite the state’s oil and gas tax credit system through a November ballot measure, says the court ruling only underscores their push to overhaul the system and provide more revenue to the state and fewer credits to some of the larger oil fields on the North Slope. 

“While the credits at issue in the today’s decision have been repealed, the wasteful per barrel tax credits continue to cost Alaskans tens of millions of dollars every year,” said David Dunsmore, the group’s campaign manager. “Alaskans have been paying the cost of these credits with their jobs, their ferries, their dividends, and higher local taxes. Ballot Measure 1 will end these wasteful credits for our three largest and most profitable fields — the Prudhoe Bay Unit, the Kuparuk River Unit, and the Colville River Unit.”

But Kara Moriarty, president and CEO of the Alaska Oil and Gas Association, said the ruling was a “major disappointment” and another reason why the ballot measure seeking to require the system is a bad idea.

“Adopting massive tax increases as proposed by Ballot Measure 1, especially in these economic times, would only make things worse,” she said. “Now is not the time to make dramatic changes to Alaska’s single most important economic engine.”

Gov. Mike Dunleavy’s office confirmed the Department of Revenue will halt the issuance of this particular bonding and said the Department of Law will begin reviewing the anticipated impacts of the court ruling. The governor’s office declined to comment further on the decision.

Contact staff writer Erin McGroarty at 459-7544. Follow her on Twitter: @FDNMpolitics.