A Citizen’s Guide

With the release of the proposed gas line contract, it is time to re-examine the issue of whether we can, consistent with our state constitution, provide the long-term tax certainty requested by the Exxon Mobil, ConocoPhillips and BP.

The short answer is “no.”

Some believe that we should simply wait for a court to rule on this question. The danger in not confronting this crucial constitutional issue lies in the cost of delay. We must not take a course that is likely to lead to failure. Embarking on a gas line project that depends on a ruling in favor of tax certainty from the Alaska Supreme Court is not wise.

The overwhelming weight of constitutional history, past and present legal opinion, and established case law points to a ruling from our Supreme Court that hews to this general legislative truth: one Legislature cannot bind the next.

The debate centers on our constitution’s explicit prohibition against surrendering, suspending, or contracting away the power of taxation. I refer to this provision as the “no surrender” clause. Many state constitutions have them. Our constitution does allow for exceptions to this rule, provided that the exceptions are done by general law. The exact sentence reads: “Other exemptions of like or different kind may be granted by general law.” There are no other avenues for providing long-term tax certainty. If it can’t be done by general law, then it can’t be done at all.

Our courts have consistently defined “general law” to mean “statute.” Here is an example from the Alaska Supreme Court: “The basis for a home-rule charter may be either a constitutional grant of authority, a general law enacted by the state Legislature, or a combination of both.” The obvious point to remember about laws enacted by any given state Legislature is that they can be changed by the next one.

A statute enacting a contract does not solve the problem if the contract provides long-term tax certainty. Former Assistant Attorney General Jack Griffin put it this way: “To the extent the Legislature may ‘contract away’ the taxing power, it may do so only by general law, which is to say that the ‘contract’ is subject to repeal or modification by any future Legislature.”

The policy behind the “no surrender” clause came from overly generous long-term tax exemptions granted by 19th century state legislatures to banks and railroads. When subsequent legislatures tried to alter these exemptions, the affected business interests went to court, claiming that their exemptions amounted to contracts and that the proposed alteration was in violation of that contract. These cases resulted in rulings favorable to the businesses from the U.S. Supreme Court.

The reaction to these rulings was a series of state constitutional amendments designed to prevent the granting of these long-term tax exemptions. Some 19 states adopted “no surrender” clauses. Alaska did so when its constitution was drafted in Fairbanks during the winter of 1955-56.

Since statehood, there has not been a direct court challenge to a long-term promise of tax certainty. Yet there are many signals from our court that all point in one direction: A statute that makes a promise of a long-term tax freeze will not survive in the face of our “no surrender” clause. This line of thought was captured by our Supreme Court when it wrote, in a tax dispute between the oil industry and the state, “the state could not, and did not, contract away its power as a sovereign to tax.” While not a final statement of law on this subject, this sentence spells trouble for those seeking to bind the state to a promise of tax certainty for a decade or longer.

It is not just courts that view a long-term tax freeze skeptically. Many experienced Alaska legal observers have expressed grave doubts about the legality of the long-term tax promises desired by the oil companies. The Legislature must not authorize a contract that is based on a false promise.

Sen. Hollis French is a Democrat from Anchorage.