Dunleavy revised his plans for CARES Act spending, but same legal issues remain

After legal issues sidelined much of Gov. Mike Dunleavy’s plans to disburse hundreds of millions of dollars in federal COVID-19 relief money to communities and small business relief programs, the governor revised the requests but it appears those revisions still aren’t enough to pass legal muster.

Ahead of Wednesday’s meeting of the Legislative Budget and Audit Committee, the Legislature’s financial analysts have once again flagged legal issues with Dunleavy’s plan to disburse a total of $568 million to local communities, $290 million to a small business relief program and $100 million to fisheries.

The Legislative Budget and Audit Committee has the power to amend the state’s budget in place of the whole Legislature, but that power comes with limitations. Namely, the committee cannot make wholly new appropriations in the budget. Instead, the committee can only take existing appropriations of federal money and increase them.

The Legislative Budget and Audit Committee met on Friday, where it unanimously approved six of the governor’s requests that covered the following items: $86.7 million in school funding (split between two items), $421,500 in arts funding, $3.6 million in public safety funding, $29 million in federal transportation grants and $5 million for the University of Alaska. All were areas that had existing federal receipt authority attached, clearing the Legislative Finance Division’s analysts.

At the time, LB&A Chair Chris Tuck said the committee didn’t have the time to properly review the revised requests submitted to the committee by the governor just hours before it met. He promised that the committee would return this Wednesday where members would be “addressing further RPLs that we can legally address.”

According to updated analysis provided to The Midnight Sun, all but one revised spending requests still fall out of the scope of what the Legislative Budget and Audit Committee can legally approve.

Only the governor’s $10 million request for grants to homeless assistance programs meets the legal standard, argues the Legislative Finance Division, though two additional requests that deal with airport funding and the Whittier Tunnel could be further revised to clear the legal challenges.

It leaves direct payments to communities, small business relief and fisheries relief—the big-ticket items in the governor’s plan—without a speedy path forward. Instead, it would require the Legislature to meet again to approve a wholly new budget, which is something that the Legislature has been reluctant to do.

That’s why before the Legislative Budget and Audit Committee is set to meet on Wednesday, the House Judiciary Committee is scheduled to meet to hear overviews of the differing legal opinions on the matter.

“The purpose of the hearing is to hear the different views, especially on the RPL process,” House Judiciary Committee Chairman Rep. Matt Claman, D-Anchorage, told The Midnight Sun. “My hope is to hear from both the attorney general’s office to articulate the position being taken by the administration but also hear from our lawyers because it sounds like there’s some disagreement. I want to get a better understanding of the source of the disagreement. Are they reading the same statute and coming to different conclusions or does the attorney general’s office have another basis for the analysis they have? I want to have a better understanding of the two different views.”

The House Judiciary Committee is scheduled to meet at 10 a.m. The Legislative Budget and Audit Committee is scheduled to meet at 1 p.m.

Why it matters

There are several issues at play here, but the main one is over the Legislature’s power of appropriation.

Under former Office of Management and Budget Director Donna Arduin, the Dunleavy administration pursued a tremendous expansion of the governor’s power to spend money. His draft budgets prepared by Arduin’s office included language that would have allowed the administration to easily shift money around departments without legislative oversight, an ask that was roundly rejected by the Legislature.

Since then, legislators have been hesitant to give the governor any expanded spending powers, even when facing a pandemic. The Legislature wrapped up its work just as the CARES Act was taking shape and ultimately chose to limit his spending power to the realm of public health, tightly constraining his ability to unilaterally undertake any economic relief efforts.

It’s an issue that remains sensitive. When Legislative Budget and Audit Committee Vice Chair Sen. Click Bishop made the motions to approve the governor’s requests last week, he noted that it was a product of the unusual times and not an abrogation of the Legislature’s duties.

Claman said those issues are at the forefront of Wednesday’s discussion.

“Under our Constitution, the power to appropriate is uniquely given to the Legislature. The governor gets to spend the money consistent with how the Legislature appropriates it,” he said. “I think the question is the Legislature going to exercise their authority as established in the Constitution or, in this instance, are we going to try to find a different way to do that?”

Claman, an attorney, said he wants more information before settling into a specific course of action, whether it be returning to Juneau or allowing Dunleavy to push ahead.

And it’s not just the appropriation process that has raised concerns with legislators but also how the governor proposes to spend that money.

Several legislators, particularly those from the Fairbanks area, have complained that the allocations to communities are far from equitable and seem to highly favor communities with sales taxes. The administration recently revised those numbers, but inequity could lead to further challenges.

There’s also been legal issues with how money can be spent—an issue that Claman said will also be taken up at the House Judiciary Committee meeting—as the federal government’s guidance on the funds could put the state in a bind. The biggest issue here, Claman said, is whether the money can be used to replace lost revenue in local budgets. The U.S. Treasury said it can’t be used as revenue replacement but Anchorage and several other communities in the country have challenged that reading. The state could be on the hook for improperly spent money, a chief concern for legislators who are also looking ahead to particularly dire state budgets.

Legislators have also raised concerns with the administration’s bank-driven response to small business relief. Several recent hearings have highlighted the cashflow problems the government-mandated closures have created, and legislators argue that a loan-driven process won’t meet all needs. The Legislative Finance Division also noted that the administration has provided little detail about how the $290 million in small business relief money would be actually be deployed.

A new budget bill would give the Legislature greater say in shaping and defining those programs.

It then becomes a matter of whether the Legislature can muster the political will to return to Juneau.