The Honorable Bill Walker
AGO HB 331/SB 176
No. HB 331/SB 176
Alaska Attorney General Opinion
May 2, 2018
The
Honorable Bill Walker
Governor
State
of Alaska
P.O.
Box 110001
Juneau,
AK 99811-0001
Re: HB
331/SB 176, Alaska Tax Credit Certificate Bond Corporation
Legislation
Dear
Governor Walker:
You
have asked for a legal opinion on whether bonds payable
subject only to appropriation, such as the tax credit bonds
proposed in House Bill 331/Senate Bill 176 ("HB
331"), can be issued consistent with the requirements of
article IX of the Alaska Constitution. We believe that
subject-to-appropriation financing tools like those proposed
in this bill are not prohibited by the Alaska
Constitution.[
1]
The
Alaska Constitution, article IX, section 8, places limits on
the power to incur state debt:
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.
Yet the
Alaska Supreme Court has held that not all financial
obligations are "state debt" to which these limits
apply. The key question is whether the State incurs an
"obligation involving borrowed money where there is a
promise to pay sums ... in the future whether funds are
available or not.
2"
HB 331
bonds do not promise to pay creditors "whether funds are
available or not"; instead payment of these bonds is
expressly conditioned on appropriation of funds by the
Legislature for this purpose. HB 331
3 states that the tax
credit bonds "do not constitute a general obligation of
the state and are not state debt within the meaning of art.
IX, sec. 8, Constitution of the State of
Alaska."
4 The bill further provides that
"the legislature may appropriate" annually
for the debt service on the bonds but that the issuance of
the bonds does not create "a debt or liability of the
state."
5 It is our understanding that, as is
customary with bonds whose debt service is subject to
legislative appropriation, the bonds and other disclosure
documents such as the preliminary official statement will
state clearly to potential purchasers that the bonds are not
a general obligation of the State and that payment is
"subject to appropriation."
Because
payment on these bonds is subject entirely to the
legislature's discretion to appropriate funds for that
purpose, and the bonds give the bondholders no recourse
against the State, these bonds are not "state debt"
subject to the limitations of article IX, section 8, and need
not be ratified by voter referendum.
A.
The Alaska Supreme Court has ruled that financial
obligations expressly subject to legislative
appropriation are permitted by the Alaska
Constitution.
General
obligation bonds issued under article IX, section 8 of the
Alaska Constitution pledge the State's full faith and
credit, and payments on those bonds cannot be avoided because
a court can order payment from the state treasury. But the
proposed tax credit bonds would be
"subject-to-appropriation" bonds, which means that
payment on these bonds is contingent on annual legislative
appropriation decisions. Thus, by HB 33 l's express
terms, a person holding these bonds has no legal right to
force payment if the Legislature does not appropriate funds
to service the bonds.
In
Carr-Gottstein Properties v. State,
[6] the Alaska
Supreme Court ruled that not all kinds of debt incurred by
the State are subject to the limitations of article IX,
section 8. Instead, these limitations apply only to
"constitutional debt, " "a term of art used to
describe an obligation involving borrowed money where there
is a promise to pay sums such as rents accruing in the future
whether funds are available or not[
7]" In that
case, the Court concluded that a lease-purchase agreement did
not create constitutional debt for purposes of article IX,
section 8.
8 It reasoned that the agreement did not
create impermissible constitutional debt because the
State's obligation was subject to appropriation, the
agreement limited the debt holder's recourse against the
State, and the agreement did not bind future
legislatures.
9
Similarly,
HB 331 authorizes an agreement that makes repayment of the
bonds expressly subject to appropriation and gives the
bondholders no recourse against the State. In fact, HB 331 is
explicit in providing that the bonds are not "state
debt" and do not constitute a general obligation of the
State. Although the lease-purchase agreement in
Carr-Gottstein is obviously a different financial
instrument than the bonds authorized by HB 331, the
differences are not material for purposes of determining
whether they amount to constitutional debt. The lease
purchase agreement, like the bonds in HB 331, was...
