Legislative hearing challenges Dunleavy’s authority to direct $1.25B in federal COVID-19 aid

Ever since Congress approved the CARES Act, a sweeping measure delivering trillions of dollars in federal aid to prepare for and respond to the COVID-19 pandemic, there’s been questions about how $1.25 billion in direct aid to the state of Alaska could be spent.

Gov. Mike Dunlevy sought to put the money to use in replacing some of the more significant cuts he made when he delivered more than $200 million in vetoes to state spending last week, a move that immediately raised red flags.

That’s because, as several legislators have pointed out, that’s precisely the kind of spending that would fall out of the admittedly limited guidance released so far by the federal government.

“Right now, the only guidance that exists is that it needs to be used for unanticipated expenses related to the COVID preparation, mitigation and response,” explained Legislative Finance Division Director Pat Pitney at a House Finance Committee hearing called on Wednesday to broadly review the CARES Act.

Much of the hearing was spent on uncertainty surrounding business loan programs, but the legal questions related to the $1.25 billion may be some of the most important and could lead to yet another legal battle between the Legislature and the governor.

While Dunleavy defended his actions, saying they’re in line with the legal advice from Attorney General Kevin Clarkson, Legislative Legal Services Director Megan Wallace warned legislators that federal money comes with strings attached. Spending it outside of the purpose of covering unexpected expenses related to COVID-19 could land the state in trouble, she said.

“Part of the reason that careful analysis and consideration should be given is that (the CARES Act) does contain oversight authority and the inspector general of the Department of Treasury does have oversight, monitoring and basically an audit function to make sure that expenditure of the funds … are spent in compliance with the use-of-funds provision, which is they are necessary expenditures for the COVID-19 emergency,” she said. “If it’s later determined that the state did not use the funds for that purpose, there is the risk that the state will be forced to repay those amounts.”

Several of the items Dunleavy vetoed with the intention of replacing them with the federal money have long been part of the budget: About $100 million to reimburse local governments for a portion of the costs to build and renovate schools, $30 million in direct payments to communities and $67 million for education.

The only vetoes of this kind that were of wholly new spending were about $7.7 million in state funds the Legislature appropriated to fight COVID-19 ($2.7 million to Anchorage and $5 million for homelessness grants).

Though Wallace didn’t directly review the vetoes during the meeting, noting that each expenditure needs to be analyzed on its own, a group of six Senate Democrats called Dunleavy’s plans “dubious” in a letter outlining their concern that the vetoed programs were important regardless of the COVID-19 emergency.

“If your interpretation of the CARES Act is misguided, items critical to the necessary, healthy functioning of our state and of our local communities may be left without funding during FY21,” explained the letter. “Or, if the state unlawfully uses the funds, Alaska will have to pay back the federal government.”

Further legal issues

The legal issues covered Wednesday don’t stop at whether Dunleavy is on sound legal footing in his place to supplant vetoed programs with COVID-19 money. Also at issue is just how much latitude the governor has to spend the money without legislative approval.

Wallace said there are constitutional issues at play because the power of appropriation rests with the Legislature, which is still technically in session though legislators left Juneau at the end of March.

“Once these funds hit the state treasury, as you know under Article IX, Section 14 of the Alaska Constitution the money cannot be withdrawn from the treasury without an appropriation,” she said. “In other words, before these CARES Act funds can be expended, they must have been appropriated.”

She said the state has three options to spend this money: The governor can work within his existing spending authority given to him by the Legislature, he can request expanded spending authority for existing appropriations from the Legislature or the Legislature can meet to pass a new budget bill.

The Legislature anticipated the arrival of federal dollars in its final days of session and gave Dunleavy broad power to spend specifically in the public health realm, including spending up to $10 million from the state’s disaster relief fund. It didn’t, however, get into economic relief measures or expanded payments to local communities.

Wallace noted that the Legislature did provide some methods to deliver payments to communities through the bond debt reimbursement, community assistance and education programs because he vetoed them out to zero those appropriations no longer exist and therefore can’t be increased.

Wallace also noted that there’s strict limitations on what the Legislature can do without passing a wholly new budget bill, spending a fair amount of time explaining the technical Revised Program Legislative Process that allows the governor to request additional spending authority on already existing items. Overall, she said it’s very limited in terms of deploying the $1.25 billion.

Asked by legislators, she acknowledged that the cleanest way to put that money to use is for the Legislature to pass a new budget bill.

“That’s certainly a policy call for the Legislature but if we talk about risks involved—as we can see from this discussion today—there’s a lot a of unknowns, but what the Legislature and what the state does know is that the state will receive a minimum of $1.25 billion from the federal government,” she said. “If we want to take out the speculation or confusion in terms of authority to expend those monies, yes, the simplest thing to do is for the Legislature to specifically appropriate the $1.25 billion. Then there’s no confusion in terms of who has the authority and where those funds go.”

It’s unclear what the administration’s position is when it comes to this process. Other than discussing the intent to replace vetoes with coronavirus money, the administration has been quiet about its plans for the money though Dunleavy said last week that they hadn’t discussed turning it into a cash payment to Alaskans akin to the dividend.

Dunleavy had requested open-ended authority from the Legislature to spend as much as $1 billion in state money. Legislators rejected that proposal, likening it to handing the governor, who they’ve frequently been at odds with, a briefcase full of money with no questions asked.

House Finance Committee co-chair Rep. Jennifer Johnston, R-Anchorage, said at the meetings she hopes the Legislature and governor can work together to come to a speedy resolution of these questions.

“We are definitely at a point where we all need to work well together and work in an expedient manner to get these funds out to the state in the most thoughtful manner,” she said. “I think all of us are realizing this is not something that is going to go away in a week or a month and it may take years to recover so I think we need to reach out to the administration and say we are here and willing to help and we want to see Alaska move forward.”