Legislators spar with Dunleavy administration over ‘quagmire’ created by unprecedented sweep

Sen. Lyman Hoffman, D-Bethel, listens during Senate Finance Committee hearing on Feb. 6, 2019. (Photo by Alaska Senate Majority/Flickr)

The Senate Finance Committee finally got officials from the Office of Management and Budget in front of them today to answer questions about the reasoning, handling and impacts of an unprecedentedly broad liquidation of state accounts under the annual “sweep.”

Senators were particularly critical of the administration’s expansion of what accounts were swept, including the Power Cost Equalization fund that helps Alaskans cope with high energy prices, the account that pays scholarships to University of Alaska students and one that funds the state’s childhood vaccination program. The committee had requested to hear from the administration last week but was denied the meeting.

The sweep is driven by the Alaska Constitution after the state spends out of the Constitutional Budget Reserve. Any leftover funds attached to the state’s general fund are automatically swept into the CBR to repay previous spending. Legislators usually vote to immediately move those funds back into place through a three-quarter vote, but that failed when minority House Republicans withheld their vote as leverage for a $3,000 PFD.

The Dunleavy administration then took the unprecedented move of reinterpreting the rules of the sweep, grabbing more than a dozen accounts that have typically been held harmless from previous sweeps.

The move, which happened without public or legislative input and with little notification of when the sweeps even occurred, left many programs like the Power Cost Equalization program, the state scholarship program and the state’s vaccination program without the funds to operate.

Neil Steininger, an administrative services director for OMB, acknowledged that some programs like the state scholarships and Power Cost Equalization would be “factually impossible” now that the funds were swept.

Notification

The first word of the expanded sweep came when the Alaska Commission on Postsecondary Education notified thousands of current and prospective University of Alaska students were told that their scholarships were put on hold while funding sat in limbo.

Sen. Lyman Hoffman, D-Bethel, asked if there were the same kinds of notifications offered to people who rely on the Power Cost Equalization program. When Steininger said he wasn’t sure, Hoffman said he knew there wasn’t because he’s a recipient and has yet to see any notification.

“I would think that if this administration were responsible, they would notify those people because it has financial implications to them,” he said. “You might not be a recipient, but when you see your electric bill go up 50 percent or 100 percent that’s going to affect the decisions you’re going to make in your daily budgeting.”

He said in communities like Noorvik the average customer can expect to see their annual energy bill increase by as much as $2,000 without the long-time subsidy. Noorvik also happens to be the hometown of Gov. Michael J. Dunleavy’s wife, Rose, and the site of the governor’s inauguration celebration.

“That notice should be given out to people in Bethel, people in Lime Village, people in Noorvik, all of the people. They should be given notification that according to the interpretation of OMB, under the direction of Gov. Dunleavy, they are going to have additional financial responsibilities and they need to be notified so they can take the proper measures to adjust their budgets,” he said.

Hoffman regularly said he doubted the rationale used to justify the sweeping of the funds, which are held by the Alaska Energy Authority in an attempt to separate the account from the general fund and suggested the matter could be settled in court.

“I think that is going to be determined sometime in the future through the legal process,” he said.

The administration’s proposal

While much of this could potentially be fixed with a three-quarter vote to reverse the sweep, that’s not what the administration is suggesting.

Instead, the administration suggested that instead of passing a three-quarter vote to restore the funding, the Legislature should let the sweep of about $2 billion stand and instead restore funding piecemeal.

The move would cost the state about $115 million to cover the program shortfalls created by the administration’s sweeps and only require a majority vote. It seemed to gain little traction with the senators on Thursday because it would effectively make cutting—or eliminating the programs—easier in future years.

The administration started this year critical of these dedicated funds and separate accounts, but had pledged to work during the interim on a solution for the funds.

The multi-billion elephant in the room

Though the account didn’t come up during the administration’s time in front of the committee, Legislative Finance Division Director David Teal touched on the earnings reserve account of the Permanent Fund. He said the account has been previously held outside of the sweep but said with the new rationale trotted out by Dunleavy that it should fall under the sweep, too.

He said the Alaska Constitution considers revenue from the Permanent Fund as general fund revenue and is a better fit for the sweep than many of the other funds, particularly ones that are only funded with fees and taxes, that were swept by Dunleavy.

He said if the matter makes it to the Alaska Supreme Court and the sweep of the Power Cost Equalization account is upheld, it would likely extend to the earnings reserve account.

The account is where revenue from the constitutionally protected Alaska Permanent Fund is deposited and is used to pay dividends and for a portion of state government operations. It was drawn down significantly this year to fund government and through a transfer of $5.5 billion to the corpus of the account.

It would be depleted if it was swept.

“Nobody thinks this is funny. If the ERA is swept then there are no dividends,” he said. “That’s why I say you have simply no choice other than getting this reverse sweep done with a three-quarter vote.”

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2 Comments on "Legislators spar with Dunleavy administration over ‘quagmire’ created by unprecedented sweep"

  1. Thank you for this very well written and enlightening article that handles complex and somewhat arcane state budget matters fairly clearly.

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