Forrer v. State, 090420 AKSC, S-17377

Docket NºS-17377
Opinion JudgeSTOWERS, JUSTICE.
Party NameERIC FORRER, Appellant, v. STATE OF ALASKA and LUCINDA MAHONEY, Commissioner of the Alaska Department of Revenue in her official capacity, Appellees.
AttorneyJoseph W. Geldhof, Law Office of Joseph W. Geldhof, Juneau, for Appellant. Laura Fox, William E. Milks, and Mary Hunter Gramling, Assistant Attorneys General, Anchorage, and Kevin G. Clarkson, Attorney General, Juneau, for Appellees.
Judge PanelBefore: Bolger, Chief Justice, Winfree, Stowers, Maassen, and Carney, Justices.
Case DateSeptember 04, 2020
CourtSupreme Court of Alaska

ERIC FORRER, Appellant,

v.

STATE OF ALASKA and LUCINDA MAHONEY, Commissioner of the Alaska Department of Revenue in her official capacity, Appellees.

No. S-17377

Supreme Court of Alaska

September 4, 2020

Appeal from the Superior Court of the State of Alaska No. 1JU-18-00699 CI, First Judicial District, Sitka, M. Jude Pate, Judge.

Joseph W. Geldhof, Law Office of Joseph W. Geldhof, Juneau, for Appellant.

Laura Fox, William E. Milks, and Mary Hunter Gramling, Assistant Attorneys General, Anchorage, and Kevin G. Clarkson, Attorney General, Juneau, for Appellees.

Before: Bolger, Chief Justice, Winfree, Stowers, Maassen, and Carney, Justices.

OPINION

STOWERS, JUSTICE.

I. INTRODUCTION

The issues we consider today are not new. The disastrous consequences of runaway state debt weighed heavily on the minds of the Alaska Constitutional Convention's Delegates as they pooled their collective knowledge and expertise to ensure that the 49th State would not suffer financial missteps of generations past.1 As Delegate Barrie M. White aptly explained: [I]ncurring debt is different from most any other type of legislation in that it not only goes directly to the pocketbook of the people concerned, but all the people of the State, but also to the pocketbook of future generations and that is why... so many states, so many local political subdivisions, always require debt to be approved by the people.2

Having experienced the Great Depression firsthand, [3] the Delegates desired fiscal responsibility and public accountability; these principles reverberate throughout article IX of the Alaska Constitution. The clearest expression of this collective intent is contained in section 8: "7Vo state debt shall be contracted unless authorized by law for capital improvements or... housing loans for veterans, and ratified by a majority of the qualified voters of the State who vote on the question."[4] Through this provision, the Delegates sought to prohibit "state debt" of any kind without public approval, subject only to a small set of exceptions.5 Today we are called upon to reaffirm those basic principles.

Anticipating a shortfall of revenue from previously enacted tax incentives, the 30th Alaska State Legislature attempted to offset future fiscal unpredictability by authorizing a discounted buyback of tax credits financed by bonds without pledging the "full faith and credit" of the State. Without a vote of the people, the legislature created a public corporation capable of borrowing up to $1 billion through the issuance of subject-to-appropriation bonds to purchase outstanding oil and gas exploration tax credits, with bondholders to be reimbursed solely at the discretion of future legislatures through appropriations to the new public corporation. A taxpayer brought suit, alleging inter alia that the legislature violated the Alaska Constitution's state debt limitation. The superior court granted the State's motion to dismiss, ruling that the legislation did not create "debt" for purposes of the constitutional limitation. We reverse and hold that this financing scheme - even if unforeseeable in the mid-twentieth century - is the kind of constitutional "debt" that the framers sought to prohibit under article IX, section 8 of the Alaska Constitution.

II. FACTS AND PROCEEDINGS

A. History Of Constitutional Debt Limits

Unlike the federal constitution, many state constitutions contain limitations or prohibitions on the debt that state and local governments may incur.6 The origins of state constitutional debt provisions can be found in the early nineteenth century.7Following the War of 1812, states sought to improve infrastructure for protection and to encourage westward expansion.8 State constitutions adopted between 1830 and 1850 thus "encourage[d] internal improvements within the state," such as the construction of turnpikes, canals, and railroads.9 Toward that end, many states sold bonds pledging their full faith and credit then loaned the proceeds to private corporations to carry out various construction projects.10

But states began incurring debt "almost without limit," growing their collective debt from $13 million in 1830 to $100 million in 1838.11 The bubble eventually burst when it became clear that many corporations could not repay their loans to states and could not generate the projected revenue from their projects.12 When the nation was besieged by an economic crisis referred to as the Panic of 1837, some states repudiated their debts or defaulted on interest payments as a result.13

Before 1840 no state constitution contained a restriction on incurring state debt.14 After the Panic of 1837 many states revised their constitutions to include restrictions on legislative discretion to create state debt.[15] But within a few decades the booming railway industry made legislatures eager to circumvent those constitutional debt restrictions.16 The favored means of achieving this was to issue bonds through municipalities, but the economic crisis that followed led to more state constitutional revisions closing that loophole.17 The next major device for circumventing state debt restrictions was the public authority, which first became popular in the 1930s.18 In theory, a public authority or public corporation would be a distinct unit from the state for most purposes and could issue bonds, levy charges, and repay its debts without violating constitutional debt restrictions.19

B. Proceedings Of The Alaska Constitutional Convention

More than a century after the Panic of 1837, [20] the framers of our constitution sought to preserve the role of the people as a check against the incurrence of unnecessary debt, rather than impose a strict debt limit.21 The Delegates received extensive materials in advance of the convention, including copies of every state constitution22 and a collection of reports drafted on behalf of the Alaska Statehood Committee.23 The report on state finance in particular recognized that strict debt limitations "reflect a fear that the state may borrow itself into insolvency" and "are common in state constitutions."24 The report viewed the efficacy of such debt limits as "questionable," despite their widespread proliferation, based on the assumption that "[t]he era of heavy borrowing for economic development... is long past."25 The report concluded by noting that a democratically elected legislature and market pressures "seem to make constitutional debt restrictions . . . unnecessary," and thus suggested only a constitutional requirement that the legislature specify the sources for financing appropriations.[26] The Committee on Finance and Taxation, 27 which was responsible for the task of drafting what would become article IX, rejected this reasoning when it included a number of debt restrictions in its initial proposal.28

The Committee did consider for a time allowing the legislature to provide for a debt up to a certain limit, but that was decided against, so at the present time the only debt of the state now which can be allowed is a debt to be paid out of anticipated revenues, that is from year to year, except a debt which must be approved by the people on referendum. In other words, the people are the ones that put the limit on any public debt, any large amount.[29]

The Committee rejected other forms of debt restrictions30 and specifically rebuffed a suggestion to adopt a strict percentage-based debt ceiling.31 The Committee reasoned that any amount "would perhaps be either inadequate, too high or too low, and would not offer any protection either way."32 After "a good deal of consideration," the Committee decided that rather than "leaving it entirely to the legislature" or setting a strict debt limit, it would adopt a reasonable middle ground - "that a referendum be called for and ... the approval by the qualified voters be obtained."33 Delegate White summarized this rationale best in the continuation of his statement we quoted at the outset: [A] bond proposal to the people via referendum is the greatest way that you can take as a minimum requirement to insure that the credit of the state will not be impaired. . . .

[T]he basic question here is whether or not you want the people of the state to pass on an incurrence of debt or whether you want to leave it to the legislatures34

One proposed amendment would have nevertheless permitted a two-thirds vote of the legislature to contract debt without a public referendum.35 Delegates in opposition argued that "the people should be allowed to vote on whether or not the state shall become indebted."[36] Delegate White, who also served as Committee Secretary, reiterated that "[i]t is the opinion of the majority of the Committee that such debt should be approved by the voters."37 Delegates in favor of giving the legislature more control suggested "that two-thirds of each house will more adequately protect the credit of the state" than a public referendum, [38] while some noted that similar provisions had seen success in other state constitutions.39 Others pointed to the revenue bond exception, reasoning that a strict public referendum requirement would "force the state" to rely on establishing separate corporations and selling revenue bonds, which would in turn "force a much higher interest rate on the taxpayers of Alaska."40 Those arguments were rejected when the Delegates voted to delete the two-thirds language from the proposed amendment.[41] Another proposed amendment would have permitted the legislature to set the voting requirements for municipal bond measures, but that too was defeated.42 The Delegates preferred to keep the public referendum procedures intact as a check against future legislatures.

Of course, the framers...

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