Comments on the Proposed Gas Pipeline Fiscal Contract
4 June 2006I reprint here with permission some particularly insightful, well informed comments submitted as public testimony at hearings on the gas pipeline fiscal contract. The comments were written by Eric Larson, a local, well respected economist.
The fiscal certainty clause in Article 11, section 1 of the proposed fiscal contract raises two important Constitutional issues:
1) Can the Legislature limit the taxing authority of future Legislatures?
2) Can the Legislature limit the taxing authority of the voter initiative process?In his testimony before the Legislature on May 10, the Attorney General offered his legal opinion that the Legislature can contract away the taxing authority of future Legislatures and can limit the taxing authority of the voter initiative. His opinion about Legislative taxing authority) is based primarily on interpretations of the intent of the framers of the Alaska Constitution as found in the minutes of the Constitutional Convention; He cites no Alaska Supreme Court decision that directly addresses the issue. His opinion about voter initiative taxing authority is based on two Alaska Supreme Court decisions that say the authority of the voter initiative process can be no greater than the current or existing level of authority of the Legislature. Neither of these Court decisions address the legal issue of whether the Legislature can legally reduce or curtail the authority of the voter initiative below its current level of authority.
Because there are no rulings that directly address these two constitutional questions, there will likely be a constitutional challenge of the fiscal contract. We will need an Alaska Supreme Court ruling to adjudicate these issues.
The likely need for a Supreme Court ruling creates uncertainty for all contract participants. They face the uncertainty about whether the contract is enforceable under the Alaska Constitution. It is possible, even after the contract is signed by the Legislature and all the participants, that it could be ruled unconstitutional and not enforceable. This uncertainty increases the risk to all parties and decreases the possibility that the contract would actually be signed and implemented.
In order to mitigate this risk and increase the likelihood that the contract is actually signed and implemented, I encourage you to seriously consider re-negotiating the fiscal stabilization clause in Article 11.1. In particular, consider the testimony of James Barnes of Barnes and Casci, an international gas pipeline contract expert hired by the Legislature. I’ll paraphrase what he said in his May 21 testimony before the Legislative Budget and Audit Committee: “The disadvantage of using [the type of fiscal stabilization currently specified in Article 11.1] is it requires one Legislature to prohibit future Legislatures from acting; and that usually has some constitutional questions…. the longer the term [of the contract], the more uncertain that becomes.â€
He describes an alternative provision, used in other gas pipeline contracts, that could reduce that uncertainty and mitigate the political risks faced by the contract participants. Again, paraphrasing Mr. Barnes’ testimony: “The other way that fiscal stabilization occurs is a renegotiation or a re-opener type of mechanism…. [It] is also known as an economic equilibrium provision. …[The] way it works is the State tells the producer, or investor, that if the fiscal laws change and you are adversely impacted, we will meet and renegotiate to achieve economic equilibrium as it was before enactment of the new tax law….â€
I encourage you to investigate economic equilibrium provisions in comparable contracts and to include “re-opener†provisions in the fiscal contract. If crafted correctly, these provisions would reduce or eliminate the need for a Supreme Court ruling on the Constitutionality of the contract. With a re-opener clause, the current Legislature would not be restricting future Legislatures; they would still have the opportunity to change oil and gas tax law through the re-opener or re-negotiation provisions. There may no longer even be a need for a Supreme Court ruling with a re-opener clause.
Without the uncertainty of a possible Supreme Court ruling hanging over their heads, all contract participants would face less risk and would be more likely to actually sign and to implement the contract. In addition, with a re-opener clause, the State would preserve the basic democratic rights of Alaskans guaranteed by Article 9 and Article 11 of the Alaska Constitution. A re-opener clause would guarantee that the next two generations of Alaskans could make meaningful contributions to debates about oil and gas tax policy in the state.
A re-opener clause would be far better than the current fiscal certainty provisions of Article 11.1 of the contract. The current provisions effectively deprives our children and our grandchildren of basic democratic rights (such as access to the voter initiative process) and excludes them from making any substantive contributions to the public policy debate about oil and gas taxes for the next 45 years. This is not fair to future generations that have not even been born yet and it is contrary to our basic democratic traditions.
July 21st, 2006 at 2:58 am
consider that State Attorney general has no more standing than his position as the governors legal advisor…appointed. The position has no legal standing outside of any other lawyer practicing in the state.
Big picture here is really Murks executive order for Yukon plan which establishes a new trade center..which enables Murkowski to personally sign and select any and all land, assets, securities, capital needed regardless of prior use. Setting up the Yukon for gas? Think Armstrong and watch Murk and friends lay cash to Yukon. After all “we can dig up the Yukon River if we want too” and the governor will personally authorize emminent domain ensure all assets and land needed.