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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Eric Forrer v. State of Alaska and Lucinda Mahoney (9/4/2020) sp-7480
Notice: This opinion is subject to correction before publication in the P ACIFIC REPORTER.
Readers are requested to bring errors to the attention of the Clerk of the Appellate Courts,
303 K Street, Anchorage, Alaska 99501, phone (907) 264-0608, fax (907) 264-0878, email
corrections@akcourts.us.
THE SUPREME COURT OF THE STATE OF ALASKA
ERIC FORRER, )
) Supreme Court No. S-17377
Appellant, )
) Superior Court No. 1JU-18-00699 CI
v. )
) O P I N I O N
STATE OF ALASKA and LUCINDA )
MAHONEY, Commissioner of the )
Alaska Department of Revenue in her )
official capacity, )
) No. 7480 - September 4, 2020
Appellees. )
)
rom the Superior Court of the State of Alaska, First
Appeal f
Judicial District, Sitka, M. Jude Pate, Judge.
Appearances: 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.
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
----------------------- Page 2-----------------------
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,
[ ]
2
always require debt to be approved by the people.
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: "No 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
1 See, e.g. , 4 Proceedings of the Alaska Constitutional Convention (PACC)
2424 (Jan. 17, 1956) (statement of Del. Seaborn J. Buckalew) ("Now the only reason that
you have any limitations or restrictions on the legislature is to prevent the legislature
from impairing the credit of the state. You don't want to get a runaway legislature and
deplete the treasury or obligate the people for something that they can't pay for.");
LASKA STATEHOOD COMM., C ONSTITUTIONAL STUDIES pt. IX, at 21-23 (1955)
3 A
[hereinafter C ONSTITUTIONAL STUDIES] (providing a brief history of debt limitations in
state constitutions).
2 4 PACC 2434 (Jan. 17, 1956) (statement of Del. Barrie M. White).
3 See 1 PACC 441-42 (Nov. 30, 1955) (statement of Del. Victor C. Rivers)
(detailing economic recovery efforts in Alaska after the Great Depression).
4 Alaska Const. art. IX, § 8 (emphasis added).
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5
only to a small set of exceptions. 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
Unlikethefederal constitution, many state constitutions contain limitations
6 The origins of
or prohibitions on the debt that state and local governments may incur.
5 Article IX, section 8 also contains exceptions for emergencies and for
"redeeming indebtedness outstanding at the time this constitution becomes effective,"
neither of which is involved here.
6 Richard Briffault, Foreword: The Disfavored Constitution: State Fiscal
Limits and State Constitutional Law, 34 RUTGERS L.J. 907, 908 & n.12 (2003).
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7
state constitutional debt provisions can be found in the early nineteenth century.
Following the War of 1812, states sought to improve infrastructure for protection and to
8 State constitutions adopted between 1830 and 1850
encourage westward expansion.
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
7 Susan P. Fino, A Cure Worse than the Disease? Taxation and Finance
Provisions in State Constitutions, 34 RUTGERS
L.J. 959, 965-66 (2003).
8 See Attorney Gen. v. Pingree, 79 N.W. 814, 816 (Mich. 1899); Fino, supra
note 7, at 965-66.
9 Pingree, 79 N.W. at 816; see also Fino, supra note 7, at 965-66 (discussing
internal improvements); Briffault, supra note 6, at 911 (same).
10 Fino, supra note 7, at 967.
11 Pingree, 79 N.W. at 816.
12 Briffault, supra note 6, at 911; see also Pingree, 79 N.W. at 816 ("But now,
that the great bubble of speculation and inflation was burst, it became plain to the
comprehension of the dullest that some of the state projects were wild and chimerical,
and they were abandoned altogether.").
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----------------------- Page 5-----------------------
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
14 After the Panic of 1837 many states revised their constitutions to include
debt.
restrictions on legislative discretion to create state debt.15 But within a few decades the
booming railwayindustrymadelegislatureseager tocircumvent thoseconstitutional 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
13 Briffault, supra note 6, at 911; see also Lonegan v. State (Lonegan I ), 809
A.2d 91, 95-96 (N.J. 2002) (explaining the origins of New Jersey's Debt Limitation
Clause from the Panic of 1837 and the economic crisis's impact on states).
14 Stewart E. Sterk & Elizabeth S. Goldman, Controlling Legislative
Shortsightedness: The Effectiveness of Constitutional Debt Limitations, 1991 WIS. L.
REV. 1301, 1309.
15 Briffault, supra note 6, at 917. By the mid-twentieth century, nearly every
state had adopted some form of debt limitation. Id. at 917 n.55; C. Robert Morris, Jr.,
Evading Debt Limitations with Public Building Authorities: The Costly Subversion of
ALE L.J. 234, 240-41 (1958). The general purpose of
State Constitutions, 68 Y
constitutional debt limits has been described as being based on the reality "that
governments are congenital borrowers who often deal unwisely" by resorting to
"excessive borrowing" when "caught between the popular pressures for new
developments and against additional taxes." Id. at 247.
16 Fino, supra note 7, at 977-78; see also Morris, supra note 15, at 241
(municipalities).
17 See Fino, supra note 7, at 977-78; Reuven Mark Bisk, Note, State and
Municipal Lease-Purchase Agreements: A Reassessment, 7 HARV. J.L. & P UB. P OL'Y
521, 525-26 (1984) (explainingthatmunicipaldebtrestrictions arosefrommunicipalities
purchasing railroad stock with borrowed funds "to persuade the railroad to pass through
(continued...)
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----------------------- Page 6-----------------------
18
restrictions was the public authority, which first became popular in the 1930s. 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
21
of unnecessary debt, rather than impose a strict debt limit. The Delegates received
extensive materials in advance of the convention, including copies of every state
22
constitution and a collection of reports drafted on behalf of the Alaska Statehood
17 (...continued)
its town," but that practice ended with the Depression of 1873).
18 Briffault, supra note 6, at 926-27; Morris, supra note 15, at 234-39.
19 Morris, supra note 15, at 234-40; see also Lonegan I, 809 A.2d 91, 101-02
(N.J. 2002) (collecting cases); Schulz v. State, 639 N.E.2d 1140, 1146 (N.Y. 1994)
(explaining that "a public authority would be self-supporting" and "would separate their
administrative and fiscal functions from those of the State").
20 See VICTOR FISCHER, A LASKA 'S CONSTITUTIONAL CONVENTION, at vii
(1975).
21 In this sense, a "strict" debt limit refers to "[a] ceiling placed on borrowing
by . . . [the] government" by "prohibit[ing] the state[] from incurring debt in excess of
a stated amount." Debt Limitation, BLACK 'S LAW DICTIONARY (11th ed. 2019). Such
limits are often expressed by a percentage of total revenue; for example, Hawaii prohibits
the legislature from issuing general obligation bonds if doing so would cause the total
outstanding debt to exceed 18.5% of the average general fund revenues from the prior
three years. Haw. Const. art. VII, § 13.
22 See ALASKA STATEHOOD COMM., H ANDBOOK FOR DELEGATES TO THE
ALASKA CONSTITUTIONAL CONVENTION 4-5 (Nov. 8, 1955) [hereinafter D ELEGATE
(continued...)
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23
Committee. 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
24 The report viewed the efficacy of such debt limits as
common in state constitutions."
"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 notingthat ademocratically elected legislatureand 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
22 (...continued)
HANDBOOK], http://www.akleg.gov/pdf/billfiles/ConstitutionalConvention/Folder%2
0106.pdf.
23 CONSTITUTIONAL STUDIES, supra note 1; see also State v. Alex, 646 P.2d
203, 209 n.5 (Alaska 1982) (noting that Delegates to the Constitutional Convention all
received the Alaska Statehood Committee's reports).
24 3 CONSTITUTIONAL STUDIES, supra note 1, pt. IX, at 21.
25 Id. at 23.
26 Id.
27 The Committee on Finance and Taxation consisted of Delegates Dorothy
J. Awes, Frank Barr, James Nolan, Frank Peratrovich, Chris Poulsen, and Barrie M.
White, with Leslie Nerland as the Chair. 6 PACC App. V at 104 (Dec. 16, 1955). The
Committee appointed Frank Barr as its Vice-Chair and Barrie M. White as Secretary.
1 PACC 264 (Nov. 16, 1955).
28 See 6 PACC App. V at 105-09 (Dec. 16, 1955).
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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. . . .
29 2 PACC 1112 (Dec. 19, 1955) (statement of Del. Frank Barr).
30 Id. (statement of Del. Barrie M. White) ("We considered other limitations
and discarded them.").
31 3 PACC 2302-03 (Jan. 16, 1956) (statement of Del. Leslie Nerland).
32 Id. at 2303.
33 Id. at 2302.
-8- 7480
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[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 legislature. [34]
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 revenuebonds, 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
34 4 PACC 2434 (Jan. 17, 1956) (statement of Del. Barrie M. White).
35 Id. at 2421.
36 Id. at 2432 (statement of Del. W.O. Smith).
37 Id. at 2434 (statement of Del. Barrie M. White).
38 Id. at 2424 (statement of Del. Seaborn J. Buckalew).
39 Id. at 2421-22 (statement of Del. Burke Riley).
40 Id. at 2435-36 (statement of Del. Victor Fischer). The response to this
argument was that higher interest rates are "merely an added inducement to go back to
the referendum where such issues ought to be." Id. at 2437 (statement of Del. Barrie M.
White).
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41
amendment. Another proposed amendment would have permitted the legislature to set
42
the voting requirements for municipal bond measures, but that too was defeated. The
Delegates preferred to keep the public referendum procedures intact as a check against
future legislatures.
Of course, the framers also recognized that an appropriate amount of
flexibility would be necessary for the State to meet unforseen financial situations in the
43 Section 11 provides that flexibility by permitting the State to issue "revenue
future.
bonds . . . when the only security is the revenues of the enterprise or corporation" and
eliminating any restrictions on "refunding indebtedness of the State."44 And because
those exceptions might not sufficiently alleviate section 8's debt prohibition, section 10
allows the State to "borrow money to meet appropriations" without restriction, under the
sole caveat that "all debt so contracted shall be paid before the end of the next fiscal
year."45 Debate surrounding the anti-dedication provisions in section 7 likewise echoed
the Delegates' desire to limit debt by preserving legislative discretion to freely allocate
46 In providing a select and limited handful of
appropriations from the general fund.
41 Id. at 2437-38.
42 See 3 PACC 2335-43 (Jan. 16, 1956).
43 See 1 PACC 9 (Nov. 8, 1955) (statement of Robert B. Atwood, Chair,
Alaska Statehood Committee) (noting that Alaskans do not want "unwise restrictions and
all the other abhorrent developments that come from an inflexible constitution").
44 Alaska Const. art. IX, § 11.
45 Id. § 10.
46 See id. § 7; 4 PACC 2364 (Jan. 17, 1956) (statement of Del. Barrie M.
White); id. at 2368 (statement of Del. Dorothy J. Awes); id. at 2409 (statement of Del.
Mildred R. Hermann); id. at 2413 (statement of Del. Seaborn J. Buckalew); 6 PACC
(continued...)
-10- 7480
----------------------- Page 11-----------------------
pathways to incur and manage "state debt," the framers sought to balance competing
ideals of fiscal restraint and flexibility. 47
Belying the depth of debate on article IX, section 8, the framers refrained
48 Instead, section 8 was intended
fromattaching a technical definition to the term"debt."
to apply broadly to the contracting of all "ordinary debt."49 The Delegates entertained
varying views on what this restriction encompassed50 : some referred to section 8 as
46 (...continued)
App. V at 111 (Dec. 16, 1955).
47
See 2 PACC at 1109 (Dec. 19, 1955) (statement of Del. Barrie M. White)
("[Article IX] is aimed to assure a sound system of finance and taxation and leave as
much leeway to the state as possible and the sound practices to be carried out in the
future.").
48 Other state constitutions reviewed by the Delegates took the opposite
approach. See, e.g., Wash. Const. art. VIII, § 1(d) (defining "debt" as "borrowed
money . . . secured by the full faith and credit of the state").
49 2 PACC 1110-11 (Dec. 19, 1955) (statement of Del. Barrie M. White); see
also id. at 1112 ("The only limitations here are that ordinary debts be submitted to the
voters for approval . . . ." (emphasis added)).
50 The most pertinent opinionsareperhaps thoseoftheCommitteeon Finance
and Taxation. In its initial proposal, the Committee noted that it "considered and
incorporated in this report many of the ideas contained in convention proposals
numbered 3, 4, 6 (Sections 8, 10, 11 and 12), 20 and 41." 6 PACC App. V at 104
(Dec. 16, 1955). Of particular relevance here is Delegate Proposal No. 4, introduced by
Delegate R.E. Robertson, which proposed a strict percentage limit for all "current,
bonded, and other indebtedness" of the State. Del. Proposal No. 4, § 1, Alaska
Constitutional Convention (Nov. 17, 1955), http://www.akleg.gov/pdf/billfiles/Consti
tutionalConvention/Folder%20300.pdf. Although the Committee rejected such a
restriction, this proposal suggests it was aware that Delegates understood the term"debt"
to mean more than just bonded indebtedness. While Delegate Proposal No. 6 dealt with
public education, section 12's proposed language bears a striking resemblance to article
(continued...)
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51
limiting the ability to "borrow money," others as placing limitations on "reasonable
52
borrowing."
Still others were more generally concerned with preserving the State's
53
credit. At its narrowest, some Delegates thought of section 8 as applying only to
"general obligation bonds," although that was usually when framed as the opposite of
54
"revenue bond[s]." Despite these differences, one commonality is that the Delegates
50 (...continued)
IX, section 8 of the Alaska Constitution. Compare Del. Proposal No. 6, § 12, Alaska
Constitutional Convention (Nov. 17, 1955), http://www.akleg.gov/pdf/billfiles/Consti
tutionalConvention/Folder%20300.pdf ("The State shall incur no public school debt
without first obtaining sanction of the people of the State in a state-wide
referendum . . . ."), with Alaska Const. art. IX, § 8. The Committee was therefore well
aware of the importance Delegates placed on public referenda for any type of debt
approval, even school bonds.
51 See 2 PACC 1112 (Dec. 19, 1955) (statement of Del. Maurice T. Johnson)
("[I]n Section 9 and 10 there seems to be a limitation on the right of the state to borrow
money."). At this point in the Convention, "Section 9" referred to what would
eventually be split into current sections 8 and 9 of article IX. See 3 PACC 2301-04
(Jan. 16, 1956) (renumbering as section 8); 4 PACC 2421-41 (Jan. 17, 1956) (splitting
into separate provisions for state and local debts).
52 3 PACC 2338 (Jan. 16, 1956) (statement of Del. John H. Rosswog).
53 See 4 PACC 2424 (Jan. 17, 1956) (statement of Del. Seaborn J. Buckalew)
("Now the only reason that you have any limitations or restrictions on the legislature is
to prevent the legislature from impairing the credit of the state."); 2 PACC 1112
(Dec. 19, 1955) (statement of Del. Barrie M. White) (noting that the credit of states with
a "dollar or percentage [debt] limitation . . . is generally no better than the credit of states
that have no debt limitations").
54 See, e.g., 3 PACC 2303 (Jan. 16, 1956) (statement of Del. Leslie Nerland)
("[Section 11] refers only to the allowance of contracting of revenue debt without the
restrictions of the previous section on general obligations ." (emphasis added)); 4 PACC
2393 (Jan. 17, 1956) (statement of Del. Victor C. Rivers) (differentiating between the
requirement for a public referendum for "general obligation bonds" as opposed to
(continued...)
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----------------------- Page 13-----------------------
understood that at its core the objective of section 8 was to control and restrict the
55
issuance of bonds.
Thus, the public referendum requirement itself was considered
56 The people of the
paramount as "a necessary safeguard against excessive bonding."
Territory of Alaska subsequently ratified the Delegates' proposed Alaska Constitution
on April 24, 1956.57
C. The 2003 And 2006 Oil And Gas Exploration Tax Credits
The saga of the transferrable oil and gas exploration tax credits begins with
the decline of oil and gas production in Cook Inlet. Facing a maturing oil field and
58
shrinking revenues, the legislature in 2003 sought to prolong the life of existing
54 (...continued)
"revenue bond[s]"). The framers did not discuss "subject-to-appropriation" bonds, as
this concept would not be developed until almost a decade later. See Schulz v. State, 639
N.E.2d 1140, 1148 (N.Y. 1994) (noting that the term " 'moral obligation' debt" was
"apparently coined in the 1960's to describe appropriation-risk bonds that could not
legally bind the Legislature beyond a session").
55 See, e.g., 3 PACC 2302 (Jan. 16, 1956) (statement of Del. Leslie Nerland)
("Section [8] is one regarding the contracting of bonded indebtedness . . . ."); id. at 2317
(statement of Del. Maurice T. Johnson) ("[W]ith reference to Section 8 . . . the one on
the matter of bonded indebtedness . . . ."); id. at 2336 (statement of Del. Victor Fischer)
("I'm not against requiring a referendum before a local government unit can issue
bonds . . . ."); id. at 2342 (statement of Del. Edward V. Davis) ("[U]nits of local
government, as well as the state, should be governed by some basic rules before they can
bond."); see also 2 PACC 941 (Dec. 16, 1955) (statement of Del. Ralph J. Rivers)
("Bonding would be to borrow . . . .").
56 3 PACC 2337 (Jan. 16, 1956) (statement of Del. Leslie Nerland).
57 See Act of July 7, 1958, Pub. L. No. 85-508, § 1, 72 Stat. 339, 339
(providing for the admission of the State of Alaska into the Union).
58 Minutes, S. Res. Comm. Hearing on S.B. 185, 23d Leg., 1st Sess. 2-3
(May 6, 2003) (testimony of Mark Myers, Dir., Div. of Oil and Gas, Dep't of Nat. Res.),
(continued...)
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59
operations in the region by reducing the amount of royalties owed, which in turn would
60
help preserve Alaskans' jobs in the oil and gas industry.
Aside from rescuing the Cook
61 to
Inlet oil fields, the legislature also created new, transferrable exploration tax credits
encourage production in marginal fields, thereby spurring job growth and future
62
revenue. The transferability of these credits was intended to assist small, independent
"wildcat" explorers by permitting these future tax reductions to be sold on the existing
market in exchange for capital to fund current operations.63
Three years later a new form of transferrable tax credit was introduced.64
The 2006 oil and gas exploration tax credits were passed alongside a new production
tax,65 which restructured the prior oil and gas royalties regime to shift away from a gross
58 (...continued)
http://www.akleg.gov/PDF/23/M/SRES2003-05-061610.PDF.
59 See ch. 59, § 2, SLA 2003 (codified as amended at AS 38.05.180(f)(6)).
60 Minutes, S. Res. Comm. Hearing on S.B. 185, 23d Leg., 1st Sess. 22
(May 5, 2003) (statement of Gary Carlson, Senior Vice President, Forest Oil Corp.),
http://www.akleg.gov/PDF/23/M/SRES2003-05-051534.PDF.
61 See ch. 59, § 3, SLA 2003 (codified as amended at AS 43.55.025).
62 Minutes, S. Fin. Comm. Hearing on S.B. 185, 23d Leg., 1st Sess. 9-10
(May 13, 2003) (statement of Sen. Thomas Wagoner, Sponsor), http://www.akleg.gov
/PDF/23/M/SFIN2003-05-131641.PDF.
63 Minutes, S. Fin. Comm. Hearing on S.B. 185, 23d Leg., 1st Sess. 8-9
(May 14, 2003) (statement of Dan Dickinson, Dir., Tax Div., Dep't of Revenue),
http://www.akleg.gov/PDF/23/M/SFIN2003-05-140940.PDF.
64 Ch. 2, § 13, TSSLA 2006 (codified as amended at AS 43.55.023).
65 Id. § 25 (codified as amended at AS 43.55.160).
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----------------------- Page 15-----------------------
66
tax on production to a tax on net revenues. Governor Frank Murkowski's transmittal
letter explained that theoverhaul was necessaryfor "encouraginginvestmentin thestate"
67 The
and that it would "provide fiscal certainty for future generations of Alaskans."
legislature heard testimony that the new tax credits would stimulate reinvestment in the
State and have an immense impact on the economics of oil and gas exploratory
operations.68 These transferrable tax credits could then be used by the recipient to reduce
its production taxes in any given year,69 or they could be sold to another producer who
could then use the transferred credits to reduce its own tax liability.70 The recipient could
likewise request the Department of Revenue to purchase its tax credits, subject to
availability of annual legislatively appropriated funds.71 The legislature subsequently
created an oil and gas tax credit fund (Fund) to facilitate discretionary purchase of both
66 See 2006 Senate Journal 2258-62 (governor's transmittal letter for
precursor bill); Minutes, H. Fin. Comm. Hearing on H.B. 3001, 24th Leg., 3d Sp. Sess.
3-4 (July 25, 2006) (statement of Robynn Wilson, Dir., Tax Div., Dep't of Revenue),
http://www.akleg.gov/PDF/24/M/HFIN2006-07-251017.PDF(explainingthedifference
between gross and net taxes as applied to oil production).
67 2006 House Journal 4221-22.
68 Minutes, supra note 66, at 9-10 (statement of Pedro van Meurs, Consultant,
Office of the Governor).
69 Ch. 2, § 13, TSSLA 2006 (codified as amended at AS 43.55.023(a), (c));
see also ch. 59, § 3, SLA 2003 (codified as amended at AS 43.55.025(a)-(b), (f), (i)).
70 Ch. 2, § 13, TSSLA 2006 (codified as amended at AS 43.55.023(d)); see
also ch. 59, § 3, SLA 2003 (codified as amended at AS 43.55.025(g)-(h)).
71 Ch. 2, § 13, TSSLA 2006, repealed by Ch. 1, § 67, SSSLA 2007.
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72 73
2003 and 2006 tax credits, once again reliant on appropriations from the legislature.
At no time was the State under any obligation to purchase tax credits.
Despite the legislature's good intentions, oil prices plummeted in the latter
74 75 The purchase
and Alaska began to face serious budgetary constraints.
half of 2014,
of the combined 2003 and 2006 oil and gas exploration tax credits soon became
"unsustainable," and responding to "challenging fiscal times," Governor Bill Walker
signed a partial veto to reduce the legislature's annual appropriation to the Fund.76 The
legislature phased out the tax credits in 2016,77 effectively terminating the program in
2017.78 However, the tax credits that had already been issued remained in circulation,
with an estimated $800 million in outstanding requests for purchase and another $200
million expected.79 Governor Walker proposed his solution in House Bill (HB) 331.80
72 Ch. 1, § 46, SSSLA 2007 (codified as amended at AS 43.55.028).
73 AS 43.55.028(b)(1).
74 See generally Minutes, H. Fin. Comm. Hearing on Revenue Forecast, Oil
and Gas Tax Credits, and FY 16 Budget Overview, 29th Leg., 1st Sess. (Jan. 27, 2015),
http://www.akleg.gov/PDF/29/M/HFIN2015-01-271330.PDF (discussing the causes of
the 2014 oil price decline and its potential effects on Alaska's budget).
75 2018 House Journal 2341.
76 2015 House Journal 1324-25.
77 Ch. 4, 4SSLA 2016.
78 Ch. 3, SSSLA 2017.
79 2018 House Journal 2341.
80 See Committee Substitute House Bill (C.S.H.B.) 331, 30th Leg., 2d Sess.
(2018).
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D. HB 331 Rationale, Main Provisions, And Legislative History
In his transmittal letter, Governor Walker described HB 331 as "the next
81
vital step in resolving the State's oil and gas tax credit obligation."
In the wake of
falling oil prices and the State's reluctance to purchase outstanding tax credits, small
82
producers faced many difficulties borrowing money to complete various projects.
Legislators heard firsthand accounts from participants in the oil and gas industry on how
the tax credit program was essential for encouraging small producers to invest in
83
Alaska, and how uncertainty surrounding discretionary State purchase of those tax
84
credits had already resulted in stalled projects and the loss of hundreds of jobs. Rather
than wait several years for a full payment, those small producers preferred to take a
85 Financiers likewise testified how the tax credits had
discount in exchange for certainty.
86 and that some small
been monetized to secure loans for various exploratory projects
producers had already defaulted on their loans and were unable to access additional
81 2018 House Journal 2341.
82 Id.
83 Minutes, H. Fin. Comm. Hearing on H.B. 331, 30th Leg., 2d Sess. 15
(Apr. 23, 2018) (statement of Kara Moriarty, CEO, Alaska Oil & Gas Ass'n),
http://www.akleg.gov/PDF/30/M/HFIN2018-04-231335.PDF; id. at 18-19 (statement of
Pat Foley, Senior Vice President, Caelus Alaska).
84 Id. at 20-21 (statement of Pat Foley, Senior Vice President, Caelus Alaska);
id. at 22-23 (statement of Jeff Hastings, CEO, SA Exploration).
85 Id. at 13 (statement of Thomas Ryan, Managing Dir., Structured Fin. Grp.,
ING Capital, LLC).
86 Minutes, H. Res. Comm. Hearing on H.B. 331, 30th Leg., 2d Sess. 7
(Apr. 4, 2018) (statement of Thomas Ryan, Managing Dir., Structured Fin. Grp., ING
Capital, LLC), http://www.akleg.gov/PDF/30/M/HRES2018-04-041337.PDF.
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equity due to uncertainty about future tax credit purchases. 87 Some legislators framed
the goal of HB 331 as to "salvage" small producers "on the edge" that have "put
Alaskans to work," but who still "owe their creditors many millions of dollars" and are
88 At the same time, because HB 331 created a process that
now "barely hanging on."
would purchase those tax credits at a discount, other legislators reasoned that the bonds
would be "revenue-neutral," with the discount paying for interest on the proposed
bonds.89
HB 331 attempts to accomplish both the governor's and the legislature's
policy goals by creating a public corporation to issue and sell bonds, using those
proceeds to purchase tax credits at a discount, and then repaying bondholders via a
predictable schedule of future legislative appropriations.90 First, the bill establishes the
Alaska Tax Credit Certificate Bond Corporation (Corporation) within the Department
ofRevenue.91 TheCorporation's boardofdirectors consists ofthreecommissioners from
87 Id. at 10-11 (statement of Peter Clinton, Managing Dir., Credit
Restructuring, ING Capital, LLC).
88 S. Floor Deb. on C.S.H.B. 331, 30th Leg., 2d Sess. 3:42 (May 11, 2018)
(statement of Sen. Peter Micciche), https://www.ktoo.org/gavel/video/?clientID=2147
483647&eventID=2018051073.
89 H. Floor Deb. on C.S.H.B. 331, 30th Leg., 2d Sess. 1:10 (May 3, 2018)
(statement of Rep. Ivy Spohnholz), https://www.ktoo.org/gavel/video/?clientID=2147
483647&eventID=2018051020.
90 See 2018 House Journal 2342; Mike Barnhill & Ken Alper, Dep't of
Revenue, HB331: Oil & Gas Tax Credit Bond Proposal Presentation to Commonwealth
N o r t h , 3 0 t h L e g . , 2 d S e s s . 1 0 - 1 4 ( M a r . 3 0 , 2 0 1 8 ) ,
http://www.akleg.gov/basis/get_documents.asp?session=30&docid=53914 (presented
to H. Res. Comm.).
91 AS 37.18.010.
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theExecutiveDepartment: theCommissionerofCommerce, Community, and Economic
92
Development;theCommissionerofAdministration;and theCommissioner ofRevenue.
Although the Corporation has the power to contract for services related to bond sales,93
it has no employees.
Second, the Corporation is empowered to issue up to $1 billion in bonds,
94 Bonds may be issued
with that bonding authority to expire on December 31, 2021.
subsequent to a bond resolution fixing their terms.95 Proceeds from bond sales - after
covering issuance and administration costs - will be used to purchase outstanding tax
credits through the existing Fund96 at a discount of up to 10 percent.97 Furthermore,
bonds may be issued only if the Corporation finds that the discount rate would exceed
the interest costs by 1.5 percent or more annually.98 The Corporation may also refund
bonds if doing so would be in the State's best interest, and it is authorized to separately
issue refunding bonds and contract with a refunding trustee.99 To facilitate this, the
92 AS 37.18.020.
93 AS 37.18.030(e).
94 AS 37.18.030(a)-(b).
95 AS 37.18.060; see also AS 37.18.050 (describing the parameters of bond
terms).
96 AS 37.18.010; AS 43.55.028. The bond proceeds would be used to
purchase both types of oil and gas exploration tax credits issued under AS 43.55.023 and
AS43.55.025, as well as claims for non-transferrable tax credits under existingprograms
in AS 43.20.046, AS 43.20.047, and AS 43.20.053.
97 AS 43.55.028(l)-(m).
98 AS 37.18.080.
99 AS 37.18.090. If necessary, the Corporation is also permitted to provide
(continued...)
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Corporation may establish a reserve fund to hold money appropriated by the legislature
100 101
for bond repayments,
as well as accrued interest on bond proceeds. The reserve
102
fund exists solely for the purpose of payments on the interest and principal of bonds.
103
Finally, HB 331 makes all bond repayments "subject to appropriation,"
and the legislature is not explicitly required to deposit money in the reserve fund.104
Certain bondholders can bring an enforcement action in state court to compel payment
of their bonds,105 although HB 331 limits lawsuits on the constitutionality or validity of
the bill or of any bonds to be filed within 45 days after the Corporation adopts a bond
resolution.106 Perhaps in apprehension of just such a constitutional challenge, HB 331
contains several disclaimers:
The 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. Authorization by the
99 (...continued)
security for bonds by entering into credit-enhancement agreements. AS 37.18.050(b).
100 AS 37.18.040(a)(1).
101 AS 37.18.030(a).
102 AS 37.18.040(b). The Corporation must also set a "required debt service
reserve" threshold via resolution, and it may not issue further bonds if the amount on
deposit in the reserve fund falls below that threshold. AS 37.18.040(f), (j). But it can
deposit bond proceeds to meet that threshold and is permitted to issue bonds for the
purpose of replenishing the reserve fund to the required amount. AS 37.18.040(f).
103 See AS 37.18.040(i); AS 43.20.046(e);AS43.20.047(e); AS 43.20.053(e);
AS 43.55.028(e).
104 AS 37.18.040(g) ("the legislature may appropriate" (emphasis added)).
105 AS 37.18.070.
106 AS 37.18.110.
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legislature and ratification by qualified voters of the state is
not required under art. IX, sec. 8, Constitution of the State of
Alaska.[107]
Aside from differences in policy preferences among legislators the
questionable constitutionality of the bonding arrangement in HB 331 generated its fair
share of controversy. At the outset, the Legislative Affairs Agency provided a
memorandum doubting whether HB 331 could qualify under any constitutional
exception for incurring debt.108 The memorandum cited a Georgia case109 interpreting
similar constitutional debt restrictions for the proposition that "a public corporation may
not be used for the purpose of circumventing" article IX, section 8.110 The Department
of Law responded with its own analysis, arguing that subject-to-appropriation bonds "do
not constitute a form of 'constitutional debt,' "111 and the Governor formally requested
an opinion from the Attorney General.112 Rather than attempt to fit HB 331 within any
107 AS 37.18.030(c); see also AS 37.18.040(g) ("Nothing in this subsection
creates a debt or liability of the state.").
108 Emily Nauman, Legislative Affairs Agency, Memorandum on
Constitutionality of HB 331, 30th Leg., 2d Sess. 3-7 (Apr. 13, 2018),
http://www.akleg.gov/basis/get_documents.asp?session=30&docid=56309.
109 State Ports Auth. v. Arnall, 41 S.E.2d 246, 254 (Ga. 1947).
110 Nauman, supra note 108, at 7; see also H. Floor Deb. on C.S.H.B. 331,
supra note 89, at 12:40 (statement of Rep. David Guttenberg) (praising the legal analysis
in the Legislative Affairs Agency memo).
111 William E. Milks & Mary H. Gramling, Dep't of Law, Memorandum on
HB331,AlaskaTaxCredit CertificateBond CorporationLegislation, 30th Leg., 2d Sess.
1 (Apr. 27, 2018), http://www.akleg.gov/basis/get_documents.asp?session=30&docid
=56443.
112 STATE OF ALASKA, D EP 'T OF LAW, O P. A TT'Y GEN., 2018 WL 2092127, at
(continued...)
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exception under article IX, the Attorney General relied heavily on a New Jersey case 113
to argue that "subject-to-appropriation debt is not subject to the restrictions of article IX,
114 But state officials testifying before the legislature took a broader approach,
section 8."
115
or as
framing HB 331 on several occasions as simply refunding existing debt
potentially qualifying as a revenue bond.116
Legislators in favor of the bill tried to pigeonhole HB 331 into one of the
established exceptions for article IX, section 8. Despite the discretionary nature of the
existing programfor tax credit purchases, the most common refrain was that HB 331 was
112 (...continued)
P. A TT'Y GEN.].
*1 (May 2, 2018) [hereinafter O
113 Lonegan v. State (Lonegan II ), 819 A.2d 395 (N.J. 2003).
114 OP. A TT'Y GEN., supra note 112, at *6; see also Minutes, H. Fin. Comm.
Hearing on H.B. 331, 30th Leg., 2d Sess. 22 (Apr. 27, 2018) (statement of Mike Barnhill,
Deputy Comm'r, Dep't of Revenue), http://www.akleg.gov/PDF/30/M/HFIN2018-04-
270906.PDF (arguing that subject-to-appropriation bonds are not state debt under article
IX and noting that the administration was not "attempt[ing] to seek an exemption").
115 Minutes, supra note 86, at 23 (statement of Sheldon Fisher, Comm'r, Dep't
ofRevenue) (reasoning that HB331's impact on Alaska's credit ratingwouldbeminimal
as "one form of obligation would be converted into a different form of obligation").
116 Minutes, H. Res. Comm. Hearing on H.B 331, 30th Leg., 2d Sess. 9-10
(Apr. 6, 2018) (statement of Deven Mitchell, Exec. Dir., Alaska Mun. Bond Bank Auth.,
Dep't of Revenue), http://www.akleg.gov/PDF/30/M/HRES2018-04-061303.PDF
(noting that bonding format had not been finalized and "it could also be structured . . .
potentially as a revenue bond" (omission in original)). But see Deven Mitchell, Dep't
of Revenue, Memorandum on Debt Potentially Impacted by Broad Interpretation of
"Debt" in Alaska Constitution, 30th Leg., 2d Sess. 2 (Apr. 16, 2018),
http://www.akleg.gov/basis/get_documents.asp?session=30&docid=56197 ("[T]he
intention of using a public corporation to issue bonds . . . was not to fall into the
exception clause in the Alaska Constitution . . . .").
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117
"refunding indebtedness" under section 11. The floor debates were replete with such
statements: "This bill goes a long way towards fulfilling our promise and redeeming that
118 "It's far better that we do this and finance our debt than pay it all back
unpaid debt."
119 "Obviously, we're not really incurring new debt, . . .we're changing the
at once."
nature of existing debt."120 "[T]his is not new debt."121 "I don't believe we're taking on
a debt. We're already in debt here."122 "The bond package before us is really a
mechanism to refinance the current debt at a discounted rate . . . ."123
Some legislators also likened HB 331 to revenue bonds,124 noting "that if
we owe $100 and we only have to pay $90, there was some kind of revenue in
117 See Alaska Const. art. IX, § 11 ("The restrictions do not apply to
indebtedness to be paid from special assessments on the benefited property, nor do they
apply to refunding indebtedness of the State or its political subdivisions.").
118 H. Floor Deb. on C.S.H.B. 331, supra note 89, at 12:29 (statement of Rep.
Dan Saddler).
119 Id. at 12:32.
120 Id. at 12:37 (statement of Rep. Andrew Josephson).
121 Id. at 12:42 (statement of Rep. David Talerico).
122 Id. at 2:56 (statement of Rep. George Rauscher),
https://www.ktoo.org/gavel/video/?clientID=2147483647&eventID=2018051026.
123 S. Floor Deb. on C.S.H.B. 331, supra note 88, at 4:18 (statement of Sen.
Anna MacKinnon).
124 See Alaska Const. art. IX, § 11 ("The restrictions on contracting debt do not
apply to debt incurred through the issuance of revenue bonds by a public enterprise or
public corporation of the State or a political subdivision, when the only security is the
revenues of the enterprise or corporation.").
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125
between." To further leave open the revenue bond argument, the House Finance
Committee amended HB 331 to ensure that interest from overriding royalty agreements
126 The
would be "separately account[ed] for" in the general fund as "revenue."
Committee also rejected an amendment that would have explicitly disclaimed any
reliance on the revenue bond rationale within the bill's text.127
HB 331 passed the House on May 3,128 passed the Senate on May 11,129 and
Governor Walker signed it into law on June 20, 2018.130
E. Proceedings
Eric Forrer brought suit against the State and the Commissioner of the
Department of Revenue, in his official capacity,131 on May 14, 2018 - only three days
after HB331passedtheSenate. Forrer's original complaint primarily sought declaratory
and injunctive relief on the grounds that the bonding scheme in HB 331 violated multiple
125 S. Floor Deb. on C.S.H.B. 331, supra note 88, at 4:17 (statement of Sen.
Anna MacKinnon).
126 Minutes, supra note 114, at 15-17. The legislature then "may appropriate"
any "revenue" gained from those overriding royalty agreements into the Corporation's
reserve fund. AS 44.37.230(i). The State has never relied on this section in defense of
HB 331.
127 Minutes, supra note 114, at 21-24.
128 2018 House Journal 3563.
129 2018 Senate Journal 3091.
130 2018 House Journal 3849.
131 The Commissioner at the time Forrer initially filed suit was Sheldon Fisher,
then Bruce Tangeman replaced him in this action, followed in 2020 by the current
Commissioner, Lucinda Mahoney. Forrer v. State,No. S-17377 (Alaska Supreme Court
Order, Feb. 24, 2020).
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sections of article IX of the Alaska Constitution. The State did not answer Forrer's
132
complaint but instead moved to dismiss for failure to state a claim.
The State
supported its motion to dismiss with a 40-page memorandum and appended "a thick
volume of legislative history for HB 331." The superior court ruled that the "inclusion
of statutory history in support of a motion to dismiss . . . does not convert [it] into a
133 The case was amenable to resolution without further
motion for summary judgment."
briefing, in the superior court's reasoning, because the controversy turned entirely on
"questions of law." The superior court rejected the State's arguments that the article IX,
section 11 exceptions for revenue bonds or refunding indebtedness applied to HB 331.
Nonetheless, the superior court granted the State's motion to dismiss on the grounds that
HB 331 did not "create a legally enforceable debt" under the framework announced in
Carr-Gottstein Properties v. State upholding a lease-purchase agreement against an
article IX, section 8 challenge.134 Forrer appeals.
Forrer argues on appeal that the superior court erred by granting the State's
motion to dismiss without accepting all of his allegations as true and without converting
it into a motion for summary judgment.135 Forrer also renews his constitutional
132 See Alaska R. Civ. P. 12(b)(6).
133
The superior court also relied on Delegates' statements from the Alaska
Constitutional Convention to reach its decision. Motions to dismiss must be converted
to motions for summary judgment when "matters outside the pleading are presented to
and not excluded by the court." Alaska R. Civ. P. 12(b); see also Alaska R. Civ. P. 56
(summary judgment).
134 899 P.2d 136, 144 (Alaska 1995) (per curiam).
135 Forrer specifically argues that the superior court was wrong "to address the
merits of [his] constitutional claims in the context of a Motion to Dismiss." We interpret
this as reviving his prior argument that the procedural posture should have been treated
(continued...)
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136 137
arguments against HB 331 in respect to article IX, section 7, section 8, and section
138 139
10.
We do not reach Forrer's arguments on section 7 and section 10.
III. STANDARD OF REVIEW
We review de novo the grant of a motion to dismiss under Alaska Civil
140
Rule 12(b)(6). "In reviewing a Rule 12(b)(6) dismissal, we liberally construe the
141
complaint and treat all factual allegations in the complaint as true." We have
consistently held that dismissals under Rule 12(b)(6) "should be granted only if 'it
appears beyond doubt that the plaintiff can prove no set of facts in support of the claims
142
that would entitle the plaintiff to relief.' "
135 (...continued)
as that of summary judgment.
136 Alaska Const. art. IX, § 7 (prohibiting dedicated funds).
137 Id. § 8 (restricting the contracting of "state debt").
138 Id. § 10 (permitting interim borrowing).
139 To the extent that article IX, section 10 serves as another exception to the
debt restrictions in section 8, the State has never argued that this exception applied; in
fact, it has conceded that the bonds to be issued under HB 331 would not be repaid
within a year. We likewise decline to endorse Forrer's interpretation of section 10 as an
independent restriction that prohibits all "long-term debt."
140 Robinson v. Alaska Hous. Fin. Corp., 442 P.3d 763, 768 (Alaska 2019)
(quoting Clemensen v. Providence Alaska Med. Ctr., 203 P.3d 1148, 1151 (Alaska
2009)).
141 Id. (quoting Patterson v. Walker, 429 P.3d 829, 831 (Alaska 2018)).
142 Id. (quoting Clemensen, 203 P.3d at 1151).
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143
Issues of constitutional interpretation are also reviewed de novo. We
have explained that when we interpret the constitution, we first "look to the plain
144 "Legislative
meaning and purpose of the provision and the intent of the framers."
history and the historical context" assist in our task of defining constitutional terms as
understood by the framers.145 While we have also said that we consider "precedent,
reason, and policy,"146 policy judgments do not inform our decision-making when the
text of the Alaska Constitution and the framers' intent as evidenced through the
proceedings of the Constitutional Convention are sufficiently clear.147
IV. DISCUSSION
A. The Superior Court Did Not Err When It Declined To Convert The
State's Motion To Dismiss Into A Motion For Summary Judgment.
In the superior court proceedings, Forrer argued that the State, by attaching
anumber oflegislativehistorymaterials to itsmotion to dismiss,automaticallyconverted
the motion into one for summary judgment. The superior court ruled otherwise, noting
143 Wielechowski v. State , 403 P.3d 1141, 1146 (Alaska 2017).
144 Id. (quoting Hickel v. Cowper , 874 P.2d 922, 926 (Alaska 1994)).
145 State v. Ketchikan Gateway Borough, 366 P.3d 86, 90 (Alaska 2016).
146 Nelson v. State, 440 P.3d 240, 243 (Alaska 2019) (quoting Treacy v.
Municipality of Anchorage, 91 P.3d 252, 260 (Alaska 2004)).
147 See Se. Alaska Conservation Council v. State, 202 P.3d 1162, 1176-77
(Alaska 2009) (holding that courts must "enforce the considered judgment of the
founders" regardless of any "attractive idea" or "deserving purpose" supporting the
legislature's attempt to circumvent constitutional restrictions); cf. Curran v. Progressive
Nw. Ins. Co., 29 P.3d 829, 833 (Alaska 2001) ("[P]ublic policy can guide statutory
construction but cannot override a clear and unequivocal statutory requirement.").
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148
that "statutory history is legal material to be analyzed; it is not evidence of facts." The
court also disregarded a number of Forrer's allegations as "unwarranted factual
inferences and conclusions of law," then proceeded to dismiss Forrer's suit under Civil
Rule 12(b)(6) for failure to state a claim upon which relief can be granted.
The superior court correctly concluded that the State's motion to dismiss
was proper despite the State's submission of statutory history materials not in the
pleadings. Rule 12(b) provides that when "matters outside the pleading are presented to
and not excluded by the court, the motion [for dismissal] shall be treated as one for
summary judgment and disposed of as provided in Rule 56." Although trial courts retain
discretion over whether to convert a motion to dismiss in many instances, we have
previously observed that "a court is required to do so only if it considers matters outside
149 Whether matters fall "outside the pleading" depends on the nature of
the pleadings."
those matters - while courts may not generally consider affidavits on a motion to
150 "courts may consider materials . . . subject to 'strict judicial notice,' " such as
dismiss,
151 The ministerial act of judicial
"statutes and regulations, [or] matters of public record."
148 See Cox v. Estate of Cooper , 426 P.3d 1032, 1042 (Alaska 2018).
149 Bachner Co. v. State, 387 P.3d 16, 25 (Alaska 2016) (emphasis in original).
150 See Phillips v. Gieringer, 108 P.3d 889, 892 (Alaska 2005) ("[A] court's
inquiry on a motion under Rule 12(b)(6) essentially is limited to the content of the
complaint, while summary judgment ' "involves the use of pleadings, depositions,
answers to interrogatories, and affidavits." ' " (quoting Martin v. Mears, 602 P.2d 421,
426 n.5 (Alaska 1979))).
151 Pedersen v. Blythe, 292 P.3d 182, 185 (Alaska 2012) (quoting Martin, 602
P.2d at 426 n.6).
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notice is only required when the "question is one normally decided by the trier of fact." 152
In contrast, issues of constitutional and statutory interpretation are
153 for which resort to drafting history to clarify the meaning
decidedly questions of law,
154 This is true even in the limited scope of
of language is common practice.
Rule 12(b)(6) motions to dismiss.155 Moreover, "strict judicial notice" is particularly
unnecessary when the complaint itself relies upon those sources. Forrer implicitly called
upon the court to exercise "sound judicial interpretation" of the Alaska Constitution,
which we have previously noted may require referring to debates of the Constitutional
Convention.156 Nor can Forrer rightly complain about the State attaching HB 331's
legislative history to its motion to dismiss when Forrer himself explicitly relies on
"statements and testimony before the Alaska Legislature" from various State officials in
his complaint. Forrer cannot selectively cherry-pick statements from certain officials in
his complaint and then preclude the court from reviewing the bill's history in its entirety.
Judicial notice was therefore not required when the superior court considered HB 331's
legislative history and the drafting history of the Alaska Constitution as interpretive
152 Alaska R. Evid. cmt. 201(a).
153
See, e.g., Premera Blue Cross v. State, Dep't of Commerce, Cmty. &Econ.
Dev., Div. of Ins., 171 P.3d 1110, 1115 (Alaska 2007).
154 See, e.g., Alaska Ass'n of Naturopathic Physicians v. State, Dep't of
Commerce, Cmty. & Econ. Dev., Div. of Corps., Bus. & Prof'l Licensing, 414 P.3d 630,
634 (Alaska 2018); Wielechowski v. State, 403 P.3d 1141, 1147 (Alaska 2017).
155 See Basey v. State, Dep't of Pub. Safety, Div. of Alaska State Troopers,
Bureau of Investigations, 408 P.3d 1173, 1175-76 (Alaska 2017).
156 See Wielechowski, 403 P.3d at 1147; State v. Alex, 646 P.2d 203, 208-10
(Alaska 1982).
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157 158
aids. Nor was the mere proffer of publicly available legislative history by the State
enough to require the superior court to convert its motion to dismiss into a motion for
summary judgment.
Forrer also faults the superior court's treatment of his factual allegations.
In ruling on the State's motion to dismiss, the superior court excluded Forrer's submitted
affidavits fromconsideration and expressly rejected several ofForrer'slegal conclusions
that were "style[d] [as] assertions of fact." We have previously explained that "even on
a motion to dismiss, a court is not obliged to accept as true 'unwarranted factual
159 The "facts" alleged by Forrer in this instance fall
inferences and conclusions of law.' "
157 This is not to suggest that judicial notice is never required for materials
commonly considered part of a bill's legislative history. See, e.g. , McPhail v. Latouche
Packing Co. , 8 Alaska 297, 302-04 (D. Alaska 1931) (weighing whether courts can take
judicial notice of the dates of a bill's presentment to the governor and adjournment of the
legislatureas recorded in thelegislature's journal whenthecontroversyinvolved whether
a bill was properly enacted). But many courts allow the consideration of legislative
history as an interpretative aid without judicial notice. See, e.g. , Quelimane Co. v.
Stewart Title Guar. Co. , 960 P.2d 513, 524 n.9 (Cal. 1998), as modified (Sept. 23, 1998)
("A request for judicial notice of published [legislative history] material is unnecessary.
Citation to the material is sufficient."); cf. Cox v. Estate of Cooper , 426 P.3d 1032, 1034,
1041-42 (Alaska 2018) (upholding an Alaska Rule 77(k) motion for reconsideration of
summary judgment where the moving party attached legislative history materials not
previously presented to the court). But see Territory of Alaska v. Am. Can Co. , 358 U.S.
224, 226-27 (1959) (taking judicial notice of a statute's legislative history to aid in
interpretation).
158 The legislative history in question "consist[ed] of a copy of the enrolled bill
and transcripts of the house and senate committee proceedings and floor debates." All
of these materials are available in some form on the legislature's public website. See
ALASKA ST. L EGISLATURE, http://www.akleg.gov (last visited June 9, 2020).
159
Hainesv.Comfort Keepers, Inc., 393 P.3d 422, 429 (Alaska2017) (quoting
Dworkin v. First Nat'l Bank of Fairbanks, 444 P.2d 777, 779 (Alaska 1968)).
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160
under the latter category. And as illustrated above, the superior court was right to
exclude materials outside the pleadings - e.g., affidavits - for purposes of a motion to
161
dismiss. Furthermore, factual assertions such as those Forrer alleges make little
difference as a legal matter when considering the constitutionality of a statute on its face.
Instead, this is an example of a case that presents no material factual dispute and can be
resolved purely through the exercise of legal reasoning. It was proper here for the
superior court to disregard Forrer's alleged "facts" and rule on the motion to dismiss
without converting it into a motion for summary judgment.
B. HB 331 Contracts "State Debt" Prohibited By Article IX, Section 8.
1. Subject-to-appropriation bonds are contrary to the plain text of
the Alaska Constitution and the framers' intent.
Our first step when presented with a question of constitutional law not
squarely addressed by precedent is to consult the plain text of the Alaska Constitution
162
as clarified through its drafting history. Article IX, section 8 provides:
No state debt shall be contracted unless authorized by law for
capital improvements or unless authorizedby lawfor housing
loans for veterans, and ratified by a majority of the qualified
voters of the State who vote on the question. The State may,
160 For example, Forrer claims that it was error for the superior court not to
accept his allegation that "[t]he bonds created by HB 331 establish an obligation . . . to
pay money to bond holders in the future." Whether the bonds authorized by HB 331
create an obligation is a matter of statutory interpretation - a question of law, not fact.
See In re Hospitalization of Paige M., 433 P.3d 1182, 1186 (Alaska 2018), reh'g
withdrawn (Feb. 4, 2019). The superior court was correct to disregard Forrer's
conclusory statements.
161 See Alaska R. Civ. P. 12(b); Martin v. Mears, 602 P.2d 421, 426 n.5
(Alaska 1979).
162 Wielechowski v. State, 403 P.3d 1141, 1146 (Alaska 2017) (quoting Hickel
v. Cowper, 874 P.2d 922, 926 (Alaska 1994)).
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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. [163]
We do not interpret constitutional provisions in a vacuum - the document is meant to
be read as a whole with each section in harmony with the others.164 Terms and phrases
chosen by the framers are given their ordinary meaning as they were understood at the
time,165 and usage of those terms is presumed to be consistent throughout.166 Although
we may look to other jurisdictions' experiences with interpreting similar constitutional
terms,167 each state constitution's debt provisions are different and must be interpreted
163 Alaska Const. art. IX, § 8.
164 Cf. Rydwell v. Anchorage Sch. Dist. , 864 P.2d 526, 528 (Alaska 1993)
("Whenever possible, this court interprets each part or section of a statute with every
other part or section, so as to create a harmonious whole."); 73 A M. J UR. 2 D Statutes
§ 96, Westlaw (database updated May 2020); A NTONIN SCALIA & B RYAN A. G ARNER,
EADING LAW : THE INTERPRETATION OF LEGAL TEXTS 167-69 (2012) (whole-text
R
canon); id. at 180-82 (harmonious-reading canon). While these are canons of statutory
construction, we have recognized that "[t]he basic principles for interpreting statutes
apply to constitutions." Thomas v. Bailey , 595 P.2d 1, 4 (Alaska 1979).
165 Hickel, 874 P.2d at 926; see also Citizens Coal. for Tort Reform, Inc. v.
McAlpine, 810 P.2d 162, 169 (Alaska 1991) (relying on a 1966 dictionary to determine
the plain meaning of article XI, section 7).
166 See Fancyboy v. Alaska Vill. Elec. Coop., Inc., 984 P.2d 1128, 1133
(Alaska 1999) ("We assume as a rule of statutory interpretation that the same words used
twice in the same statute have the same meaning."); SCALIA &G ARNER, supra note 164,
at 170-73 (presumption of consistent usage).
167 See Citizens Coal. for Tort Reform, 810 P.2d at 166-67.
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168
in light their purpose and relevant history. Legal dictionaries and treatises also
recognize that
[t]he word "debt," appearing in a constitution or statute fixing
a debt limit for municipalities, does not have a fixed legal
signification but is used in different statutes and constitutions
in senses varying from a very restricted to a very general
signification. Its meaning, therefore, in any particular statute
or constitution is to be determined by construction. [169]
The Alaska Constitution does not define the term "debt" as used in article IX, unlike
some other state constitutions that explicitly limit the term to those obligations backed
by the state's "full faith, credit and taxing powers."170 But the text of section 8 identifies
two primary characteristics of "debt": (1) the debt must be "contracted," implying a
volitional act, potentially involving a contract or other promise of repayment; and (2) it
must be for a specific "purpose," only a handful of which are permissible.171 Whether
the State's "full faith and credit" is pledged is not an express consideration.172
Section 10 sheds further light on the contours of section 8: "The State and
its political subdivisions may borrow money to meet appropriations for any fiscal year
in anticipation of the collection of the revenues for that year, but all debt so contracted
168 See id. at 170 (citing Thomas, 595 P.2d at 4).
169 Debt, BALLENTINE 'S LAW DICTIONARY (3d ed. 1969); accord 56 A M. J UR.
2D Municipal Corporations, Etc. § 526, Westlaw (database updated May 2020).
170 Minn. Const. art. XI, § 4; see also Haw. Const. art. VII, § 12; Or. Const. art.
XI-Q, § 2(2); Wash. Const. art. VIII, § 1(d).
171 See Alaska Const. art. IX, § 8.
172 See Hickel v. Cowper, 874 P.2d 922, 927-28 (Alaska 1994) ("We are not
vested with the authority to add missing terms or hypothesize differently worded
provisions in order to reach a particular result.").
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173
shall be paid before the end of the next fiscal year." Section 10 provides the sole
means for the legislature to borrow funds for any purpose - not just those enumerated
in section 8 - but with the strict caveat of repayment within a year.
Section11adds onefinal parameter to theconstitutionalmeaningof"debt":
The restrictions on contracting debt do not apply to debt
incurred through the issuance of revenue bonds by a public
enterprise or public corporation of the State or a political
subdivision, when the only security is the revenues of the
enterprise or corporation. The restrictions do not apply to
indebtedness to be paid from special assessments on the
benefited property, nor do they apply to refunding
indebtedness of the State or its political subdivisions. [174]
Again, the act of "contracting debt" explicitly includes "the issuance of . . . bonds," aside
from the narrow exception of "revenue bonds."175
Section 11 also exempts "refunding
indebtedness" previously contracted under section 8.176 Where section 10 provides a
173 Alaska Const. art. IX, § 10 (emphasis added).
174 Id. art. IX, § 11.
175 The fact that only "revenue bonds" are specifically excluded likewise
suggests that all other types of bonds are included under the maxim of expressio unius
est exclusio alterius. See Alaska State Comm'n for Human Rights v. Anderson, 426 P.3d
956, 964 n.34 (Alaska 2018).
176 The State argues that the term "indebtedness" is broader than "state debt"
and should encompass any "unavoidable, pre-existing financial obligation of the State."
The only concrete example of "indebtedness" from the text is that of "special
assessments on the benefited property" -in other words, local taxes levied on properties
within a service area. See generally Fink v. Municipality of Anchorage, 424 P.3d 338
(Alaska 2018) (discussing special assessments for roads and sewers). A municipality's
power to establish a "service area" and "levy[] . . . assessments" flows directly from the
constitution. Alaska Const. art. X, § 5 (organized boroughs); see also id. § 6 (granting
the legislature the same power over unorganized boroughs). Thus the term
(continued...)
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narrow exception to section 8's limits on permissible purposes, section 11 clarifies that
revenue bonds and certain types of non-volitional obligations are not "debt" proscribed
by article IX, section 8.
The debt provisions in article IX thus form a cohesive whole, with sections
177 This
10 and 11 providing narrow exceptions to the blanket restriction in section 8.
interpretation comportswith howDelegates discussed theseprovisions,178 as well as their
broader understanding of "debt" as "borrow[ed] money,"179 usually in the context of
issuing bonds.180 In Village of Chefornak v. Hooper Bay Construction Co., we likewise
held that article IX, section 9's restrictions on local debts "are applicable only where a
political subdivision has endeavored to borrow money, via the issuance of bonds or other
176 (...continued)
"indebtedness" at most also encompasses sums the State owes through the operation of
other constitutional provisions. See, e.g., Vill. of Chefornak v. Hooper Bay Constr. Co.,
758P.2d 1266,1270(Alaska1988) (holding that court-ordered money judgment was not
"contracting debt" for purposes of article IX, section 9). The controversy before us does
not present such a situation, so we need not address the scope of this exception.
177 Becausetheseexceptions applytodifferent aspects ofsection 8,theyappear
to be mutually exclusive. In other words, the legislature could not borrow unlimited
funds under section 10, then restructure the resulting debt under section 11 to circumvent
section 10's one-year repayment requirement.
178 See, e.g., 2 PACC 1112 (Dec. 19, 1955) (statement of Del. Frank Barr)
("[T]he people are the ones that put the limit on any public debt . . . .").
179 Id. (statement of Del. Maurice T. Johnson).
180 See, e.g., 3 PACC 2302 (Jan. 16, 1956) (statement of Del. Leslie Nerland)
("[T]he contracting of bonded indebtedness . . . should in each case be approved by a
majority of the qualified voters . . . .").
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181
paper indebtedness." We noted at the time "that every previous Alaska case involving
section 9 . . . [or its] parallel constitutional provision applicable to state debts has
182 We concluded that "a judgment entered upon a settlement
concerned bonding issues."
183 Carr-
stipulation" did not fall under the article IX restrictions against contracted debt.
Gottstein Properties v. State likewise interpreted " 'debt' as a term of art used to describe
an 'obligation' involving borrowed money" in upholding a lease-purchase agreement
where there was no "promise to pay . . . rents accruing in the future."184 As we explain
below, HB 331 also fails to satisfy the Carr-Gottstein three-prong test for
constitutionally permissible "debt."
Against this background the State argues that the Delegates' silence on
"subject-to-appropriation debt" evinces an intent to not prohibit new "forms of debt."
The State selectively cites passages from the Constitutional Convention debates to
support its narrower understanding of "debt" as encompassing only "bonds pledging the
'full faith and credit of the state.' " As discussed above, we look to the Delegates'
185 Undercutting the State's
debates and statements in interpreting the constitution.
181 758 P.2d at 1270.
182 Id. at 1269.
183
Id. at 1269-70.
184 899 P.2d 136, 142 (Alaska 1995) (per curiam) (quoting Bisk, supra note
17, at 537).
185 See, e.g., State v. Ketchikan Gateway Borough, 366 P.3d 86, 92-95 (Alaska
2016) (reviewing Delegates' debate over state-local cooperative programs to determine
constitutionality); Sonneman v. Hickel, 836 P.2d 936, 938-39 (Alaska 1992) (giving
particular weight to Delegate White's statements for intent of article IX, section 7, as he
was "the spokesman for the committee which drafted [that] section"); Abood v. League
of Women Voters of Alaska, 743 P.2d 333,341-43 (Alaska1987)(considering Delegates'
(continued...)
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argument, there was only a single, passing mention of the phrase "full faith and credit"
during the Constitutional Convention, and it appeared in the context of a debate
concerning voter requirements for statewide bond elections:
The full faith and credit of the state is explained on every
bond issue, and that is a debt service that applies to all
taxpayers . . . , and I don't think that we want to compel a
registration of all property within the state . . . just in order to
have a tax roll so people can be qualified to vote as property
owners in statewide elections. I think everybody should vote
in a statewide election. [186]
Delegates knew that other state constitutions defined "debt" to include full faith and
credit,187 but omitted such language. As we mentioned before, the Delegates had a wide
array of opinions on the meaning of "debt," ranging from general obligation bonds to all
188 It should come
borrowed money, or even any act that might impugn the State's credit.
as no surprise, therefore, that neither Chefornak nor Carr-Gottstein mentioned "full faith
and credit" when discussing "debt" in the article IX context.189
185 (...continued)
own policy on closed meetings to deny implied constitutional right of public access to
legislative meetings).
186 3 PACC2346 (Jan. 16, 1956) (statement of Del. Ralph J. Rivers) (emphasis
added). Because Delegate Ralph J. Rivers was not a member of the Committee on
Finance and Taxation, see 6 PACC App. V at 104 (Dec. 16, 1955), this passing reference
is afforded no greater weight than the varied opinions of the other Delegates.
187 See DELEGATE HANDBOOK, supra note 22, at 4-5 (noting that Delegates
were provided copies of all state constitutions, including those proposed for Hawaii and
Puerto Rico).
188 See supra Part II.B.
189 We have used the phrase "full faith, credit and resources" only once before
(continued...)
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In support of its narrow interpretation of "debt," the State cites past
decisions in which we considered dispositive whether the State's credit was pledged.
But the State misconstrues our precedents. In DeArmond v. Alaska State Development
Corp., we considered a constitutional challenge against one of the first Alaska
190 Of primary concern was whether the
corporations created to issue revenue bonds.
legislature's start-up loan to the bond-issuing corporation and the corporation's use of
expected bond proceeds was a use of "public funds" or "public credit" that was not "for
a public purpose" as required by article IX, section 6.191 Because the corporation clearly
served a public purpose, and because the challenged revenue bonds were "backed only
by the resources and credit of the corporation," we held that "[t]he credit of the state is
not being pledged."192 We said nothing of article IX, section 8. Walker v. Alaska State
Mortgage Ass'n also involved revenue bonds, but the challenge included a claim under
article IX, section 8.193 The bulk of argument revolved around other constitutional
189 (...continued)
in our decisions regarding state debt, and that was because the language itself appeared
in the text of the bonding proposition at issue. See Thomas v. Rosen, 569 P.2d 793, 798
(Alaska 1977) (Boochever, C.J., dissenting). The State likewise argues that our
reasoning in Thomas supports its position, but that case involved a gubernatorial veto to
reduce the total amount of general obligation bonds the legislature submitted to the
voters for approval. Id. at 794 (majority opinion).
190 376 P.2d 717, 719-20 (Alaska 1962).
191 Id. at 721; Alaska Const. art. IX, § 6 ("No tax shall be levied, or
appropriation of public money made, or public property transferred, nor shall the public
credit be used, except for a public purpose." (emphasis added)).
192 DeArmond, 376 P.2d at 722.
193 416 P.2d 245, 253 (Alaska 1966). Although we did not use the term
"revenue bond" in Walker, we upheld the challenged bonds as being "backed only by the
(continued...)
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194
provisions and we dismissed the section 8 challenge with very little discussion, noting
only that "our holding in DeArmond is controlling here." 195
The State reads much into these two cases, but it overlooks the fact that
both concerned revenue bonds with dedicated revenue streams - not "subject-to-
appropriation" bonds - and our constitution contains a specific, limited exception for
revenue bonds.196 DeArmond 's statements on "credit," accordingly, are concerned only
with the "public purpose" clause of section 6, and Walker's statements on "debt" merely
reflect the understanding that revenue bonds are a constitutional exception to the
constitutional restriction on debt. DeArmond and Walker would be relevant here only
if the bonds issued pursuant to HB 331 qualified as "revenue bonds." We address that
alternative argument further below, but for obvious reasons, we hold they are not.
Instead, the argument the State would have us adopt to uphold HB 331
relies on logic the framers resoundingly rejected. Rather than strict application of the
procedures mandated by article IX, section 8, the State contends that the "preservation
193 (...continued)
resources and credit of the corporation." Id. In so deciding, we cited DeArmond and a
handful of cases from other jurisdictions unambiguously discussing revenue bonds. See
Orbison v. Welsh, 179 N.E.2d 727, 737-38 (Ind. 1962); Sigman v. Brunswick Port Auth.,
104 S.E.2d 467, 469 (Ga. 1958); State ex rel. Thomson v. Giessel, 60 N.W.2d 873, 877
(Wis. 1953); cf. Book v. State Office Bldg. Comm'n, 149 N.E.2d 273, 283-84 (Ind. 1958)
(upholding lease-purchase agreements under revenue bond theory). We further note that
the Association's enabling act clearly provided a means of producing revenue, i.e., the
sale of mortgages, and directed any bonds to be made "payable out of any revenues or
monies of the Association." Ch. 103, § 8, SLA 1961.
194 See Walker, 416 P.2d at 249-53 (discussing Alaska Const. art. III, §§ 22,
26; id. art. IX, § 6).
195 Id. at 253.
196 See Alaska Const. art. IX, § 11.
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of annual discretion in elected representatives is sufficient to effectuate the policies
underlying debt limitations." The State apparently forgets that the Delegates considered
and rejected just such an amendment that would have permitted the legislature to create
197 We struggle to comprehend why we should judicially
debt with a two-thirds vote.
create such a power now but checked only by a simple majority vote. The State also
makes the argument that "modern financial markets provide their own separate check on
imprudent borrowing, because interest rates reflect the affordability of debt for a
borrower and the risk of nonpayment." But our constitution already identifies who holds
the final check against imprudent borrowing: the people.198 Delegates discussed similar
interest rate arguments surrounding the aforementioned two-thirds debt amendment.199
197 See 4 PACC 2421-38 (Jan. 17, 1956).
198
Alaska Const. art. IX, § 8 (requiring all "state debt" to be "ratified by a
majority of the qualified voters of the State who vote on the question"); see also 2 PACC
1112 (Dec. 19, 1955) (statement of Del. Barrie M. White) (explaining that "no dollar
debt limitation" was deemed necessary because section 8 required all "ordinary debts be
submitted to the voters for approval"); 4 PACC 2434 (Jan. 17, 1956) (statement of Del.
Barrie M. White) ("[A] bond proposal to the people via referendum is the greatest
way . . . to insure that the credit of the state will not be impaired.").
199 See 4 PACC 2435-36 (Jan. 17, 1956) (statement of Del. Victor Fischer)
(describing how bond markets dictate interest rates based on "the ability to repay and the
faith that the bond payers have in the governmental entity," and arguing that the public
referendum requirement would compel the legislature to "sell[] bonds to establishments
and separate corporations," thereby "forcing a much higher interest rate on the taxpayers
of Alaska"). But see id. at 2436-37 (statement of Del. Barrie M. White) ("[I]f bonding
the state via a special authority should result in higher interest rates, that is merely an
added inducement to go back to the referendum where such issues ought to be.").
Notably this back-and-forth centered on the wisdom of revenue bonds, which are
explicitly permitted under article IX, section 11 - at no point did any Delegate intimate
that higher interest rates alone would suffice to protect the State's credit against
imprudent bonding schemes.
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Committee on Finance and Taxation Chair Leslie Nerland's comments on this issue are
instructive:
Allowing two methods by which a state or political
subdivision may provide for bonded indebtedness cannot
help but cause favoritism by the bond investment houses for
one method or the other, and I think there is no doubt but that
this would result eventually in the bonds of the state being
classed into two different categories and there is not much
question . . . which issue would take the lowest interest
rate. . . . [P]utting these two methods implies that we are
trying to seek out the most expedient way at the time that the
bond issue was required . . . [which] would eventually result
in two classifications on general obligations of the State of
Alaska . . . . [200]
The framers adopted this reasoning,201 but the State now attempts to seek the opposite -
sanctioning subject-to-appropriation bondswouldcreate"twoclassifications"ofbonded
indebtedness under very different interest rates, solely for the sake of legislative
expedience. Where the framers expressly considered and rejected the State's line of
logic, we cannot in good conscience adopt it a mere six decades after-the-fact.
We need not formulate a bright-line test to delineate "debt" from "non-
debt" in this instance. The plain text of the constitution and the Delegates' unambiguous
rejection of the State's arguments control our decision today. As the State points out,
rejecting its position "would prevent the State from ever engaging in this kind of
financing" as the intended purpose - to facilitate the purchase of oil and gas exploration
tax credits - is not one permitted under article IX, section 8.202 This may be true, but
200 Id. at 2434-35 (statement of Del. Leslie Nerland).
201 Id. at 2437-38 (striking the two-thirds language by a vote of 29-19).
202
Alaska Const. art. IX, § 8 (limiting types of debt permitted by referendum
(continued...)
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we have no power to rewrite constitutional provisions "no matter how clearly
advantageous and publicly supported" a policy may appear to be. Only section 10
203 but the State
permits the contracting of short-term debt without restriction on purpose,
has expressly rejected any reliance on that provision. 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.204
Although we hold the constitution's debt restriction unambiguously prohibits the
bonding scheme here, we address the State's other arguments below to reaffirm our
conclusion.
2. The subject-to-appropriation bonds established by HB 331 do
not satisfy our test from Carr-Gottstein.
Both Forrer and the State rely heavily on competing interpretations of the
205 In
framework for "state debt" we announced in Carr-Gottstein Properties v. State.
Carr-Gottstein weaffirmed in athree-sentencepercuriamopinion asuperior court ruling
upholding the constitutionality of one particular lease-purchase agreement;206 we then
202 (...continued)
to "capital improvements" and "housing loans for veterans").
203 Id. art. IX, § 10 (permitting interimborrowing "to meet appropriations" but
requiring "all debt so contracted [to] be paid before the end of the next fiscal year"). It
may be possible to restructure HB 331 in such a way as to rely entirely on section 10, but
we decline to hypothesize what such a bonding scheme would look like or whether it
would be as financially advantageous.
204 See id. art. XIII, § 1.
205 899 P.2d 136 (Alaska 1995) (per curiam).
206 Id. at 137.
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207
attached two of the superior court's orders as appendices. The controversy involved
a contract for the Alaska Court System to lease a property from the Alaska Department
208
of Natural Resources (DNR), with a purchase option upon conclusion of the lease.
209 DNR assigned its rights to a bank as
The building was owned by a private entity.
trustee, which then sold certificates of participation as negotiable instruments entitling
holders to a percentage share of the lease payments.210 Lease payments were to be made
biannually from legislative appropriations,211 subject to "a non-appropriation clause and
other terms which limit the recourse of the [certificate] holders to the leased property."212
The State asserted that in the event of non-appropriation "it would not 'forfeit' its equity;
instead, it would . . . receive the surplus proceeds of the sale or reletting of the property
after paying the outstanding principal owed under the lease."213
207 Id. at 137 n.1.
208 Id. at 138.
209 Id.
210 Id.
211 Id.
212
Id. at 144.
213
Id. at 141. The Carr-Gottstein court did not find the issue of losing equity
significant, noting that in Norene v. Municipality of Anchorage, 704 P.2d 199 (Alaska
1985), we "approve[d] of lease-purchase agreements as a threshold matter," even though
"the municipality would lose its equity in leased land if it decided not to purchase the
property at the end of the lease." Carr-Gottstein, 899 P.2d at 142. We now disavow this
characterization. Our decision in Norene concerned whether the "land swap" in question
met the definition of a lease-purchase agreement under Anchorage Municipal Code
25.20.060. 704 P.2d at 202-03. Norene did not involve a constitutional challenge, and
we did not attempt to fashion a constitutional definition of lease-purchase agreements.
(continued...)
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Todetermine whether thelease-purchaseagreementwas permissibleunder
article IX, section 8, the superior court surveyed Alaska precedent on constitutional
214 215
and a student-written law review
"debt," analogous cases from other jurisdictions,
216
note. It ultimately formulated a three-prong test: "The court upholds the lease
agreement in the case at bar where the lease (1) contains a non-appropriation clause;
(2) limits recourse to the leased property; and (3) does not create a long-term obligation
217
binding future generations or Legislatures." The court unfortunately sowed some
confusionwithitsadditional commentthat "[w]herealease-purchaseagreement does not
require a future legislature to appropriate funds, the agreement is not a long-termbinding
obligation to repay borrowed money pursuant to article IX, section 8, and is not 'debt'
213 (...continued)
Nor did Norene involve borrowing instruments - the funds involved came straight from
appropriations, the lease was for only one year, and the dispositive issue was whether the
whole transaction was valued at more than $1 million. Id.
214 Carr-Gottstein, 899 P.2d at 141-42 (first discussing DeArmond v. Alaska
State Dev. Corp., 376 P.2d 717 (Alaska 1962); then discussing Walker v. Alaska State
Mortg. Ass'n, 416 P.2d 245 (Alaska 1966); then discussing Norene, 704 P.2d at 199; and
then discussing Vill. of Chefornak v. Hooper Bay Constr. Co., 758 P.2d 1266 (Alaska
1988)).
215 Id. at 141 (discussing Book v. State Office Bldg. Comm'n, 149 N.E.2d 273
(Ind. 1958); then discussing State ex rel. Thomson v. Giessel, 72 N.W.2d 577 (Wis.
1955)). The court also noted that 21 other states permitted lease-purchase agreements
under their constitutions. Id. at 143 n.7.
216 See id. at 142 (quoting Bisk, supra note 17, at 537).
217 Id. at 144 (citing generally Bisk, supra note 17).
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218
as defined by the Alaska Supreme Court." The superior court here likewise found this
language confusing and circuitous. 219
TheStateessentially argues for atwo-parttest,combining Carr-Gottstein's
first and third prongs into a single question - whether repayment of borrowed money
is "subject to appropriation" - and rephrasing the second prong as whether there is
"recourse against the State on default."220 In contrast, Forrer argues that the Carr-
Gottstein test implicitly contained a fourth prong limiting its application to lease-
purchase agreements.221 The State's reformulation is not convincing. The Carr-
Gottstein court would not have included a third prong if it did not think it was necessary.
Nor is it immediately apparent to us why Carr-Gottstein's reasoning cannot extend
beyond lease-purchaseagreements. But wedeclinetheState's invitation to eliminateany
218 Id. at 142-43 (footnote omitted).
219 The superior court sought clarification from the parties during oral
argument several times: "Regarding those three factors . . . aren't No. 1 and 3 the
same? . . . [I]t contains a non-appropriation clause, and that's No. 1. No. 3 does not
create long-term obligation binding future generations or legislatures. Isn't that what a
non-appropriation clause does?" "I think those first and third factors are the same thing."
220 The State draws on the "term of art" language that Carr-Gottstein used to
describe the word "debt" as it appears in the constitution. 899 P.2d at 142. Relying on
that phrase, the State argues that although subject-to-appropriation bonds "are a kind of
'debt,' they are not 'state debt' . . . because they are subject to appropriation, and
bondholders have no recourse against the State on default."
221 Forrerarguesthat Carr-Gottstein created only a"narrowjudicially wrought
exception" based on considerations unique to the context of lease-purchase agreements.
He contends that "the borrowing of money is significantly different than entering into
a lease-purchase agreement," noting that bondholders would have "no recourse to
property" and failing to appropriate funds would negatively impact Alaska's credit
rating, effectively "bind[ing] future legislatures." HB 331 therefore fails on multiple
prongs of Forrer's Carr-Gottstein test.
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of the three prongs - it is abundantly clear that the Carr-Gottstein court did not find a
non-appropriation clause alone sufficient to uphold the lease-purchase agreement
involved as constitutional. We look to the sources cited and specific facts discussed in
Carr-Gottstein for assistance as we address each prong in turn.
The first prong is formalistic in nature and merely asks whether a subject-
222 There is little
to-appropriation clause exists in the challenged contract or legislation.
dispute that the first prong is met: the bonds are repeatedly referred to by the parties as
"subject-to-appropriation" and HB 331 is replete with disclaimers stating as much.223
The second prong requires the challenged arrangement to "limit[] recourse
to the leased property."224 The Carr-Gottstein court reasoned that a corporation's
"independent nature" was not dispositive, but it placed substantial value on the fact that
the lease-purchase agreement contained "other terms which limit the recourse of the
222 Although the Carr-Gottstein court appeared to rely heavily on a student
note for its test, 899 P.2d at 144 & n.10, the student note's proposed three-prong test
bearslittleresemblance: "Doesthereexist an unconditionalobligationextending beyond
the current fiscal year? Does failure to appropriate funds in the future subject the
government entity to suit? Are other government assets ultimately subject to claim?"
Bisk, supra note 17, at 544-45. The student note concludes that "[w]here a valid
nonappropriation mechanism is present, the answer to all of the above questions is
negative - no debt is created." Id. at 544. If the Carr-Gottstein court intended to adopt
this test verbatim then it would have. Compare id. at 544-45, with Carr-Gottstein , 899
P.2d at 144. Instead, the court fashioned its own three-prong test relying on the specific
context presented before it, i.e., that the agreement "contain[ed] a non-appropriation
clause and other terms which limit the recourse of the [certificate] holders to the leased
property." Carr-Gottstein, 899 P.2d at 144.
223 See AS 37.18.030(c); AS 37.18.040(g).
224 Carr-Gottstein, 899 P.2d at 144.
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225
[certificate] holders to the leased property." The property in question was privately
owned, although the title was held by DNR as lessor. 226
Because the property was not
a state asset, the State would not be liable in the event of non-appropriation, and any
outstanding payments to certificate holders could be sought from the sale or reletting of
227 The State appears to believe that this factor is satisfied because HB 331
the building.
"limits recourse even further" by the fact that there is no property, only a nominally
independent corporation.228 But that is not what the Carr-Gottstein test explicitly
requires: recourse must be constrained to an identifiable asset that is not government-
owned. Even proceeding under the assumption that the lack of a tangible res is not fatal
to this analysis, HB 331 provides that bondholders' sole recourse is to government
assets, i.e., legislatively appropriated funds, held by the Corporation.229 Thus the State
fails to meet the second prong of the Carr-Gottstein test.
The third prong finally asks whether there exists a long-term obligation.230
Relying on the student note cited by the Carr-Gottstein court, we consider whether the
challenged arrangement "extend[s] beyond the current fiscal year," and whether failing
225 Id.
226 Id. at 138.
227 Id. at 141.
228 But legislators found this point far from reassuring, instead expressing
concern that HB 331 created little more than a "sham corporation" with "zero revenue."
S. Floor Deb. on C.S.H.B. 331, supra note 88, at 3:59 (statement of Sen. Bill
Wielechowski); see also AS 37.18.020 (designating three executive branch
commissioners as the Corporation's board of directors).
229 AS 37.18.070.
230 Carr-Gottstein, 899 P.2d at 144.
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231
to appropriate subjects the lessee to suit where "government assets" can be seized. In
Carr-Gottstein there was no long-term obligation on the legislature to make annual
appropriations because the penalty for non-appropriation was termination of the lease
232 But here, the Corporation's sole
agreement and reversion of the property to the lessor.
function is to borrow money over several years to facilitate the purchase of existing oil
and gas tax credits rather than permit those credits to be applied to future oil production
taxes.233 HB 331's very purpose, then, is to create a long-term obligation even though
there was none previously. The Carr-Gottstein court's reasoning on this prong is
particularly evident in its rejection of the argument that the lease-purchase agreement
created an " 'equitable, moral or contingent' duty to appropriate funds," specifically
because the State would "not lose all equity upon termination of the agreement."234
Forrer thus contends that HB 331 fails under this prong as future legislatures would feel
enormous pressure to appropriate funds due to the potential negative impact on Alaska's
credit rating. The State does not dispute this characterization; instead it rationalizes that
the lease-purchase agreement approved in Carr-Gottstein would also have resulted in a
231 Bisk, supra note 17, at 544-45. We again note the differences between
these tests, as the student note required such obligations to be "unconditional," id. at 544,
whereas the Carr-Gottstein court conspicuously omittedsuchlanguage. 899P.2d at144.
232 Carr-Gottstein, 899 P.2d at 142-44; see also RESTATEMENT (SECOND) OF
PROPERTY, LAND. & TEN. § 10.1 (A M. L AW INST . 1977).
233 The State characterizes the Corporation's purpose as replacing these tax
credits with subject-to-appropriation bonds to amortize the State's financial obligations
and ensure greater predictability in oil tax revenues. See Minutes, supra note 86, at 18,
21-24 (statements of Sheldon Fisher, Comm'r, Dep't of Revenue). But the State was
never obligated to purchase these tax credits in the first place.
234 Carr-Gottstein, 899 P.2d at 144 n.9 (distinguishing Montano v. Gabaldon,
766 P.2d 1328 (N.M. 1989)).
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credit downgrading if the non-appropriation clause were exercised. But the Carr-
Gottstein court did not consider the State's credit rating in its decision - instead, as far
as the court was concerned, no adverse consequences would result from non-
appropriation and the legislature was truly free to exercise its discretion. In the
procedural posture presented here, Forrer's factual allegations are presumed true. We
need not decide whether a potential credit downgrade alone suffices to create debt -
what matters is that this fact precludes the State from succeeding on Carr-Gottstein's
third prong. The State's goal of spreading out its financial obligations is a reasonable
one, but the means it chose violates both article IX, section 8, and multiple prongs of the
Carr-Gottstein test.
3. Thecases from otherjurisdictions cited in support of permitting
subject-to-appropriation bonds are unpersuasive.
In support of its narrower interpretation of our constitutional debt
restriction, the State resorts to decisions of other jurisdictions for persuasive authority.
The State relies heavily on a 32-case string citation of court decisions supporting the so-
235
called majority view in Lonegan v. State (Lonegan II ).
But the vast majority of those
cases concern revenue bonds, lease-purchase agreements, or the construction or
maintenance of some sort of physical property, and none of them concern the type of
236 Revenue bonds are
solely appropriation-backed bonds contemplated by HB 331.
permitted outright under article IX, section 11, and we have already indicated our
235 819 A.2d 395, 404 n.2 (N.J. 2003) (4-3 decision).
236 From our perspective, only four of the cited cases involve non-revenue-
producing projects -mostly for road construction -forwhich subject-to-appropriation
bonds could be described as "moral obligations." See Wilson v. Ky. Transp. Cabinet, 884
S.W.2d 641, 642-44 (Ky. 1994); Schulz v. State , 639 N.E.2d 1140, 1149 (N.Y. 1994);
In re Okla. Capitol Improvement Auth., 958 P.2d 759, 776 (Okla. 1998); Dykes v. N. Va.
Transp. Dist. Comm'n, 411 S.E.2d 1, 9-10 (Va. 1991) (on rehearing).
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237
approval of subject-to-appropriation lease-purchase agreements as noted above. We
briefly explain why the cases provided by the State fail to persuade us.
Lonegan II concerned a constitutional challenge to revenue bonds for
238 A narrow majority issued broad pronouncements on what
education facilities.
constitutes debt for purposes of the New Jersey Constitution,239 but to rely on those
statements is to ignore the unique factual scenario.240 Of equal concern in Lonegan II
was that the legislature had already extensively relied on subject-to-appropriation bond
financing for the state's fiscal policy.241 The court explained that attempting to create
rules "at this late date . . . could have unintended consequences,"242 and it was "unwilling
237 The State relies on Schowalter v. State , 822 N.W.2d 292 (Minn. 2012), but
that case concerned bonds relying exclusively on tobacco settlement revenues - the
Alaska legislature enacted a similar arrangement, which we upheld as a revenue bond in
Myers v. Alaska Hous. Fin. Corp. , 68 P.3d 386, 393-94 (Alaska 2003).
238 819 A.2d at 397.
239 Id. at 402 ("Under our case law, only debt that is legally enforceable against
the State is subject to the Debt Limitation Clause."); id. at 407 ("We . . . agree with the
majority of state courts interpreting their own constitutions that the restrictions of the
Debt Limitation Clause do not apply to appropriations-backed debt."). Three of the
seven justices dissented. See id. at 407 (Long, Verniero, and Zazzali, JJ., dissenting).
240 The same court concluded earlier in the litigation that debt authorized for
educational purposes - the lawsuit's primary target - was "sui generis" due to
constitutional provisions on school funding that "separately authorize[] state-backed
school bonds without reference to the Debt Limitation Clause." Lonegan I, 809 A.2d 91,
105-06 (N.J. 2002).
241 Lonegan II, 819 A.2d at 401-02.
242 Id. at 397.
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243
to disrupt the State's financing mechanisms." The dissent pointed out that three-
244
fourths of New Jersey's debt was subject-to-appropriation, totaling nearly $11 billion.
Any default on its obligations to appropriate funds would thus have resulted in "severe
245 If anything, New Jersey's
and unacceptable harm to New Jersey's credit rating."
example in this arena counsels greater caution, not blind imitation.
Fults v. City of Coralville involved revenue bonds for construction and
urban renovation.246 The challenged urban renewal area was expected to "provide
sufficient revenue to fund the project" by increasing the value of the property tax base,247
and the city issued subject-to-appropriation bonds to finance the construction of a hotel
to achieve those ends.248 This arrangement was challenged by property owners alleging,
inter alia, that the "bonds caused the city to exceed its constitutional debt limit."249 In
rejecting an "argument that the city [was] attempting to do indirectly what it may not do
directly," the court relied on a Utah case to claim that "[i]f the express terms of the city's
agreement do not offend the constitution, then the purpose alone will not render the
250 However, the reasoning of the Utah case cited for that
agreement unconstitutional."
243 Id. at 407.
244 Id. at 409 (Long, Verniero, and Zazzali, JJ., dissenting).
245 Id.
246 666 N.W.2d 548, 551 (Iowa 2003).
247 Id. at 551 n.1.
248 Id. at 551.
249 Id. at 552.
250 Id. at 558-59 (citing Mun. Bldg. Auth. of Iron Cty. v. Lowder, 711 P.2d 273,
280 (Utah 1985)).
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point is not reassuring: "Of course the Act is intended to permit avoidance of the
constitutional debt limitations. It is the very rigidity of those limitations that has led the
courts to narrowly construe them and the legislature to actively assist local government
in avoiding them." 251
The State additionally discusses In re Oklahoma Capitol Improvement
Authority252 and the New York case Schulz v. State253 in its briefing,254 both of which
involved bonds for transportation projects to be paid for via dedicated revenue streams
from increased transportation taxes and fees.255 While these cases thus more closely
resemble revenue bonds, this type of dedicated funding is explicitly prohibited under our
constitution.256 We cannot help but note that constitutional lines between revenue bonds,
lease-purchase agreements, and subject-to-appropriation bonds have been blurred in
manyjurisdictionsduetoincrementallegislativeexperimentation andsuccessivejudicial
application of stare decisis.257 Regardless, the transportation and construction bond
251 Lowder, 711 P.2d at 279-80.
252 958 P.2d 759 (Okla. 1998).
253 639 N.E.2d 1140 (N.Y. 1994).
254 The State also mentions Dep't of Ecology v. State Fin. Comm. , 804 P.2d
1241 (Wash. 1991), but that case concerned only lease-purchase agreements, id. at 1242,
and does nothing to advance the State's argument here.
255 See In re Okla. Capitol Improvement Auth., 958 P.2d at 764; Schulz, 639
N.E.2d at 1142.
256 See Alaska Const. art. XI, § 7.
257 See, e.g., Lonegan II, 819 A.2d 395, 397 (N.J. 2003) (4-3 decision) (relying
on "over fifty years of precedent" and "the need to maintain stability" to uphold subject-
to-appropriation bonds); Schulz v. State, 606 N.Y.S.2d 916, 921 (N.Y. App. Div. 1993)
(continued...)
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contexts at least presentsomething with revenue-generatingpotential with which to retire
258
bonds should the legislature fail to appropriate funds.
This case is immediately
distinguishable from any others cited by the State - there is no res. Bondholders under
HB 331 ostensibly hold promises of payment from little more than a shell corporation
of the State.
C. The Superior Court Correctly Concluded That HB 331 Did Not
Qualify For Any Other Exceptions To "State Debt" In Article IX.
In the alternative, the State argues that HB 331 fits within one or both of the
exceptions under article IX, section 11. The superior court rejected those claims, and we
agree that the State's arguments are unfounded.
1. HB 331 is not "refunding indebtedness of the State" under
article IX, section 11.
Article IX, section 11 states in part that section 8's "restrictions do not
259
apply to . . . refunding indebtedness of the State or its political subdivisions." In
support of its contention that this exception applies to HB 331, the State - directly
contradicting its claims elsewhere that HB 331 is not debt - cites numerous instances
257 (...continued)
(conceding that challenged bonds "have all the earmarks of a long-termState obligation"
but relenting to "inescapable conclusion" dictated by "applicable precedent"); Hayes v.
State Prop. & Bldgs. Comm'n, 731 S.W.2d 797, 804 (Ky. 1987) (4-3 decision) (relying
on need for "stability to the law" in upholding purported revenue bond supported only
by "incremental taxes"). We are thus in the fortunate position of being able to learn from
the missteps of other jurisdictions, in much the same way as the framers did when
drafting article IX. See supra Part II.B.
258 See, e.g., Tpk. Auth. of Ky. v. Wall, 336 S.W.2d 551, 554 (Ky. 1960) (noting
that the public authority could raise tolls to satisfy bondholder claims if turnpike lease
were terminated). This same reasoning underlies our approval of certain lease-purchase
agreements. See Carr-Gottstein Props. v. State, 899 P.2d 136, 144 (Alaska 1995).
259 Alaska Const. art. IX, § 11.
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during the committee and floor debates on HB 331 where legislators characterized the
arrangement of issuing bonds to purchase outstanding tax credits as simply restructuring
an existing debt.
While Section 11's exception was discussed only briefly during the
Constitutional Convention, that brief description is instructive: "Section 11 . . . allows
for refunding of debt by the calling of current bonds and issuing of new ones at lower
260 The Committee on Finance and Taxation's
interest rates without the referendum."
commentary also suggests that the indebtedness to be refunded would already have been
contracted pursuant to a section 8 referendum.261 This makes logical sense, as there
would be no reason for a second referendum just to save taxpayer money through lower
interest rates when the original debt was already approved by the voters.
So understood, this provision would be unavailable for restructuring other
obligations not incurred via section 8 money-borrowing. In general, we fail to see how
a tax credit - essentially a voluntary reduction in future revenue to incentivize present
investment - could itself ever be the subject of refunding indebtedness under article IX,
section 11. As the Delegates observed, the purpose of this limited exception was to
permit the restructuring of bonds already approved by voters.
260 2 PACC 1111 (Dec. 19, 1955) (statement of Del. Barrie M. White)
(emphasis added).
261 6 PACC App. V at 111 (Dec. 16, 1955) ("In a period when interest rates
fall, a government may save large amounts of money if it can pay off its old high-rate
obligations with new funds borrowed at lower rates. This process, here permitted, is
called refunding, and the restrictions on the contraction of original debt are unnecessary;
they are here made inapplicable." (emphasis added)).
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2. HB 331 does not establish "revenue bonds" for the purposes of
article IX, section 11.
The State lastly claims that the subject-to-appropriation bonds authorized
by HB 331 qualify as revenue bonds under article IX, section 11. The State admits,
however, that the Corporation would have no actual revenues, only the funds
appropriated by the legislature. While we have previously addressed constitutional
262 263
challenges to revenue bonds in DeArmond
and Walker, in neither case did we have
to determine whether the challenged bonding arrangements actually qualified as section
264
11 "revenue bonds." We find it nevertheless significant that the legislature's sole
265
appropriation of$150,000in DeArmond was to be later reimbursed bythecorporation,
266
and the association challenged in Walker was "expected to be self-supporting." The
superior court here likewise found the State's arguments dubious and summarily refuted
them with statements from the Constitutional Convention.
262 376 P.2d 717, 721-25 (Alaska 1962).
263 416 P.2d 245, 249-53 (Alaska 1966).
264 DeArmond did not involve a challenge under our constitutional debt
restrictions. 376 P.2d at 721-25 (discussing Alaska Const. art. III, § 22; id. art. IX, §§ 4,
6). Walker did include a challenge under article IX, section 8, but we did not discuss or
interpret section 11. 416 P.2d at 253.
265 DeArmond, 376 P.2d at 720.
266 Ault v. Alaska State Mortg. Ass'n , 387 P.2d 698, 700 (Alaska 1963).
Although this assertion only appeared in an affidavit, which we noted was defective and
insufficient to support summary judgment, the affidavit was unopposed and we did not
take issue with that particular statement of fact. See id. at 700-01 & n.5. The plaintiff
was substituted after remand on Ault , hence the difference in case names. Walker,
416 P.2d at 247 n.1. The question whether the association would truly be self-supporting
did not resurface in Walker, so we presume that fact was not seriously in dispute.
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A resort to contemporaneous dictionaries reveals that the term "revenue
bond" had a distinct meaning at the time of Alaska's statehood. Webster's New
International Dictionary defined the term as "[a] bond issued by a public agency
authorized to build or acquire a revenue-producing project and payable solely out of
267 Ballentine's Law Dictionary likewise described
revenue derived from the project."
"revenue bond" as being "issued by a public body payable solely from a special fund
arising from the revenues accruing from operation of an enterprise or project for the
construction, operation, and maintenance of which the bond was issued."268 Delegates
to the Constitutional Convention reiterated this understanding of"revenue bond," noting
that the section 11 exception would be available only when "the enterprise financed by
the debt will be self-sustaining."269 The generation of rents or other revenues to repay
those bonds was considered a necessity; Delegates thus pointed to public utilities as
general examples,270 including the "Eklutna project"271 as a more specific example. The
Committee on Finance and Taxation's commentary on section 11 provided similar
272 The revenue bond structure insulates the State from indebtedness because the
insight.
267 Revenue Bond , W EBSTER 'S NEW INT 'L DICTIONARY (2d ed. 1959).
268 Revenue Bond , B ALLENTINE 'S LAW DICTIONARY (3d ed. 1969).
269
2 PACC 1112 (Dec. 19, 1955) (statement of Del. Barrie M. White).
270 3 PACC 2303 (Jan. 16, 1956) (statement of Del. Leslie Nerland).
271 4 PACC 3422 (Jan. 28, 1956) (statement of Del. John S. Hellenthal). See
generally Act of July 31, 1950, Pub. L. No. 628, 64 Stat. 382 (authorizing construction
of the Eklutna hydroelectric generating plant).
272 6 PACC App. V at 111 (Dec. 16, 1955) ("When the state or its subdivisions
can contract debts for special purposes (for example, to build a toll bridge) without
pledging more than the improvement or the revenues from the enterprise, such debt is
(continued...)
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bond is tied to a specific "self-sustaining" enterprise, such as a toll road or a public
utility, so that any liability may be levied from the separate revenue stream. In contrast,
HB 331 lacks any insulating wall because the bonds are not tied to any self-sustaining
enterprise; bond payments would be made solely from annual legislative appropriations.
Against this backdrop, the State points to the Alaska Statehood
Committee's report on state finance to argue that the framers understood revenue bonds
273 But as
simply as any means that "do not pledge the full faith and credit of the state."
we explained above, the framers rejected much of that report's reasoning when they
adopted the restrictions against contracting debt in section 8.274 Moreover, the
constitution's plain text draws a clear and meaningful distinction between the terms
"revenue" and "appropriations."275 The presumption of consistent usage, which states
276 is not a canon
that words are "presumed to bear the same meaning throughout a text,"
of construction we cast aside lightly - especially when those terms appear multiple
times within the same article.
272 (...continued)
permitted without referendum.").
273 3 C ONSTITUTIONAL STUDIES, supra note 1, pt. IX, at 23.
274 See supra Part II.B.
275 See Alaska Const. art. IX, § 10 ("The State and its political subdivisions
may borrow money to meet appropriations for any fiscal year in anticipation of the
collection of the revenues for that year . . . ." (emphasis added)); id. § 16
("appropriations of revenue bond proceeds" (emphasis added)).
276 SCALIA & G ARNER, supra note 164, at 170; accord Powerex Corp. v.
Reliant Energy Servs., Inc., 551 U.S. 224, 232 (2007); 73 A M. J UR. 2 D Statutes § 140,
Westlaw (database updated May 2020).
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The State nonetheless insists that "[t]he precise nature of a public
corporation's 'revenues' . . . has no constitutional significance," relying heavily on the
277 for this proposition.
Kentucky opinion Wilson v. Kentucky Transportation Cabinet
But Wilson is unpersuasive, as the court expansively construed prior precedent to reach
its outcome. Wilson involved a transportation bond, although the affected roads were
admittedly "nonrevenue producing."278 The court upheld the arrangement as a revenue
bond by proclaiming that what matters is "the revenue produced by the payments from
the biennial appropriations of the General Assembly and not the revenues which the tolls
on the roads might produce."279 The Wilson court cited two previous Kentucky cases
also upholding transportation bonds - the first of which, Turnpike Authority of
Kentucky v. Wall, involved revenue bonds backed by tolls and dedicated fuel taxes.280
Biennial lease payments thus consisted of "the difference between the amount of rent
281 The Wall
agreed upon in advance and the revenues actually produced by the project."
court noted that if the turnpike lease were not renewed, "the right to establish and collect
the revenues of the project passes to the Authority, . . . [and] if the revenues should prove
insufficient to service the bonds the Authority could increase the tolls."282 In other
words, the Wall court never considered the lease payments to have been a source of
"revenue."
277 884 S.W.2d 641, 643 (Ky. 1994) (4-1-2 decision).
278
Id. at 642-43.
279 Id. at 643.
280 336 S.W.2d 551, 553-54 (Ky. 1960).
281 Id. at 553 (emphasis added).
282
Id. at 554 (emphasis added).
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In the other case cited by the Wilson court - Blythe v. Transportation
Cabinet of Kentucky - the court disposed of constitutional claims against a financing
scheme similar to that in Wall with very little discussion, assuming the facts were
283 The Blythe court never indicated what sources
"identical to those presented" in Wall.
of revenue actually backed the challenged "revenue bonds" as none had been issued.284
The Wilson court then reached its conclusion on the observation that "[t]here were no
tolls involved in Blythe, and in Wall, the tolls were never represented to be sufficient to
pay the lease payments."285 Wilson, therefore, construed Blythe as standing for the
proposition that a dedicated revenue stream (toll roads) was not necessary - a
proposition never stated in Blythe - paving the way to completely recast Wall as though
it approved of legislative appropriations as an acceptable form of "revenue."286
Regardlessof Wilson's questionablereasoning, oneindelibledifferencemakes Kentucky
precedent unavailing here: revenue bonds are a creature of judicial creation in
287 whereas we are limited by our constitution.
Kentucky,
Finally, the State argues that, because the House Finance Committee at one
point rejected a proposed amendment to officially disclaim the "revenue bond" theory
283 660 S.W.2d 668, 669 (Ky. 1983) (4-3 decision). Arguably this assumption
appears to have been a result of the procedural posture of appeal from judgment on the
pleadings. See id. at 671 (Vance, J., dissenting).
284 Id. at 669-70 (majority opinion).
285 Wilson v. Ky. Transp. Cabinet, 884 S.W.2d 641, 643 (Ky. 1994) (citations
omitted).
286 Id.
287 Hayes v. State Prop. & Bldgs. Comm'n, 731 S.W.2d 797, 803 (Ky. 1987);
see also Wilson, 884 S.W.2d at 643-45 (detailing the ever-expanding definition of and
evolving rationales for revenue bonds and serial leases in Kentucky).
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for HB 331, it was therefore thought of as a viable rationale by legislators. That same
Committee did in fact amend HB 331 by adding a provision to separately keep track of
288 which the Committee viewed as an
revenues from overriding royalty agreements,
289 And yet that provision
attempt to leave the door open for revenue bond arguments.
in AS 44.37.230(i) is not cited once in any of the State's briefs throughout this
litigation - even Committee members recognized at the time that the discretionary
nature of that language would not solve "the constitutionality problem."290 Seeing as
legislators never truly believed that HB 331 created revenue bonds, to now somehow
conclude otherwise would require ignoring all of this history. Granting the State's
request would give to the legislature a broad power specifically withheld by the
framers.291 We hold that subject-to-appropriation bonds are not revenue bonds under
288 AS 44.37.230(i) ("The department shall separately account for the revenue
collected from an agreement that the department deposits in the general fund. The
legislature may appropriate the annual estimated balance in the account to the . . . reserve
fund established under AS 37.18.040." (emphasis added)); Minutes, supra note 114, at
15-17 (adopting Amendment 5).
289 Minutes, supra note114,at21-24(discussing purposeofAmendment 5 and
rejecting Amendment 9, which would have disclaimed "revenue bond" theory).
290 Id. at 16 (statement of Rep. Paul Seaton, Co-Chair, H. Fin. Comm.); see
also id. (statement of Mike Barnhill, Deputy Comm'r, Dep't of Revenue) (doubting
whether proposed amendment "addressed the constitutional concerns expressed to the
committee"). An April 13 memorandum from the Legislative Affairs Agency analyzing
HB331 ensured that Committee memberswerefully awareofthepotential constitutional
issues beforehand. See Nauman, supra note 108, at 6-7 (contemplating "a substantial
risk that . . . HB 331 will be found by a court to be unconstitutional" due to unlikelihood
that contemplated bonds "could meet even the basic definition of a 'revenue bond' ").
291 Cf. Hickel v. Cowper, 874 P.2d 922, 925 (Alaska 1994) ("Nor does the
legislature's role in making appropriations somehow alter or increase its authority to
define constitutional terms merely because the terms contain the word 'appropriation.'
(continued...)
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article IX, section 11. Thus, we conclude that HB 331 violates Alaska Constitution
article IX, section 8, and that no other constitutional provisions provide an exception that
would validate the subject-to-appropriation bonds. 292
D. Severability
Having decided that the subject-to-appropriation bonds in HB 331 violate
article IX, section 8, we must now determine whether any of the remaining provisions
are salvageable. Laws duly enacted by the legislature are endowed with a presumption
of constitutionality,293 and even if one or more sections of a law are constitutionally
infirm, AS 01.10.030 directs us to excise those portions to save the remainder if this is
possible.294 A provision is severable if "the portion remaining . . . is independent and
complete in itself so that it may be presumed that the legislature would have enacted the
295 However, when the invalidation of a central pillar
valid parts without the invalid part."
"so undermines the structure of the Act as a whole," then "the entire Act must fall."296
291 (...continued)
This court retains the same power to interpret constitutional terms regardless of the
subject matter of the term.").
292 Temporary borrowing regardless of purpose is permissible, but only if any
debt is repaid before the end of the next fiscal year. Alaska Const. art. IX, § 10. The
State has admitted that HB 331 does not qualify for this exception.
293 State v. Schmidt, 323 P.3d 647, 655 (Alaska 2014).
294 Although we have held that the general clause in AS 01.10.030 "creates an
even weaker presumption" than a specific severability clause. Lynden Transp., Inc. v.
State, 532 P.2d 700, 712 (Alaska 1975).
295 Sonneman v. Hickel, 836 P.2d 936, 941 (Alaska 1992) (citing Jefferson v.
State, 527 P.2d 37, 41 (Alaska 1974)).
296 State v. Alaska Civil Liberties Union, 978 P.2d 597, 633 (Alaska 1999).
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Because HB 331 was specifically requested by Governor Walker, we
consider his transmittal letter as a strong indication of what the bill was intended to
297
accomplish. The transmittal letter introduced HB 331 as "a bill to create a State
corporation authorized to issue bonds for the purpose of purchasing oil and gas
298
exploration tax credits." Each of the four paragraphs describing the workings of
299
HB 331 referenced "bonds" in one way or another. Although HB 331 accomplishes
more than just establishing a corporation for issuing subject-to-appropriation bonds -
it also provides a means for negotiating overriding royalty interest agreements - even
300
those provisions are inexorably linked to the proposed bonds. Furthermore, HB 331
contains no express saving clause, and we have uncovered no indication within the
legislative history that either the Governor or the legislature ever intended the other
portions of HB 331 to be stand-alone provisions. Nor does the State argue for
severability here. Because the subject-to-appropriation bonds are the central pillar
around which other minor provisions were erected, we hold that HB 331 is
unconstitutional in its entirety.
V. CONCLUSION
HB 331 violates the limitation placed on contracting debt under article IX,
section 8 of the Alaska Constitution. We REVERSE the superior court's decision
granting the State's motion to dismiss based on article IX, section 8, and AFFIRM the
297 See Flisock v. State, Div. of Ret. & Benefits , 818 P.2d 640, 645 (Alaska
1991); State, Div. of Agric. v. Fowler , 611 P.2d 58, 60 (Alaska 1980).
298 2018 House Journal 2341.
299 Id. at 2342-43.
300 See, e.g., AS 44.37.230(b) ("The department may enter into an overriding
royalty interest agreement . . . with an applicant that requests a purchase . . . from
money . . . from the Alaska Tax Credit Certificate Bond Corporation reserve fund . . . .").
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superior court'sdecision rejecting theState'sargumentsunder section 11. WeVACATE
the award of attorney's fees and REMAND for further proceedings.
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