There is a strong case to be made for the state of Alaska to honor the agreements it made to fund the oil and gas exploration companies that were selected to be included in the state's Tax Credit Incentive program.
The state, because of fiscal constraints, has chosen not to appropriate funds to meet the contractual draws as proposed by the various qualified exploration companies. Rather, the state distributed the minimum amount (about $77 million this year) to those companies. While the state had the authority to make a partial payment, that did not absolve the state from its contract terms, and by the end of June 2018 Alaska could owe close to $1 billion in tax credits.
So here we are — with oil production in the balance, the state in a fiscal dilemma with concern on how to fund its deficit, and the recipients of the state's incentive program having to curtail or cancel their planned exploration programs for the coming year. While the Legislature ended the program last summer, that still leaves current and past obligations, and the alternative of doing nothing is not in the best interest of the state. It will hold back jobs and delay the likelihood of new oil and gas discoveries, and it has been my experience that any public body that fails to meet its contractual obligations is likely to have its credit rating re-evaluated.
One alternative, given that the Legislature has put off resolving the issue, is to transfer its obligation over to a state agency that can assume the contractual terms and issue debt instruments (tax exempt bonds to cover the state's obligation).
Both AIDEA and the Alaska Railroad have such authority. They are only limited by a requirement that any debt instrument issued over $10 million would need legislative approval. The Alaska Railroad alone has a previous legislative authorization to issue up to $17 billion in tax-exempt revenue bonds for construction of the North Slope gas line, which was never used.
Lack of action benefits none of the participants. For those Alaskans who oppose incentive funding of this type, they might look to North Dakota, which funds its incentive programs on evidence of production capability.
It's time to stand up and honor our commitments and meet our obligations. The future of Alaska's economy lies in responsible development of our resource wealth, which is the foundation for economic self-sufficiency. We should start now.
Frank Murkowski served as governor of Alaska from 2002 to 2006 and before that in the U.S. Senate for almost 22 years.
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