Sullivan, Murkowski introduce legislation to the fix biggest roadblock with CARES Act money

Alaska has more than $1 billion of federal coronavirus relief money in the bank but restrictions on how that money can be spent has many worried they might not be able to put all that money to use.

And that’s not to say there isn’t the need. Communities are facing disastrous budget gaps as traditional revenue sources, particularly anything related to tourism, have dried up overnight but the federal guidance on the money explicitly forbids it from being used to replace lost revenue.

While several congressional lawmakers, Alaska municipal leaders and others dispute that reading of the law, newly introduced legislation would set the record straight on that money.

Alaska’s U.S. Sens. Lisa Murkowski and Dan Sullivan have joined a bipartisan group of senators that would allow existing CARES Act money to be used to replace revenue shortfalls resulting from the pandemic. The Coronavirus Relief Fund Flexibility Act has the backing of U.S. Sens. Sheldon Whitehouse, D-R.I., Shelley Moore Capito, R-W.Va., Angus King, I-Maine, and Kevin Cramer, R-N.D.

“Alaska has done a great job mitigating the health consequences of this pandemic so far, but the economic consequences are just beginning. State and local governments are facing a huge decline in revenue. For example, we’re seeing extremely negative impacts in the energy and tourism sectors as a result of this public health emergency and know other industries are fearful of what’s to come, like our fishing sector,” Murkowski said in a prepared statement. “It is important that the federal government provide flexibility to local governments, so the funds can be spent where it is most impactful during this crisis.”

The Alaska Legislature has held several public hearings to gather input from local governments. While the public health impact of the COVID-19 pandemic has been different for each local government, the constant has been an across-the-board loss in local revenue.

And that pain is worsened by Gov. Mike Dunleavy’s vetoes of more than $100 million in state payments to local communities, which has grown the budget gaps to unmanageable levels. Several communities have testified they’re facing a dire situation where they’ll need to consider steeply raising taxes, cutting services, dipping into savings or a combination of all three to balance their budget.

City of Gustavus Mayor Calvin Casipit told the House Community and Regional Affairs Committee on Wednesday that the city is expecting a total loss of revenue for its upcoming budget year.

“Our primary revenue sources come from summer tourism that produces sales tax, room tax and a small amount of our fish box tax,” he said. “The impacts of COVID-19 are forecasted to create catastrophic failure in our city’s budgeting process. Our city does have some reserves, but a protracted shutdown of economy will create the necessity to eliminate the services that make our city a city. … We’re not counting on any of that revenue in FY 21. We just don’t think we’re going to have much of a tourism season and that’s how we get most of our revenue.”

He warned that eliminating or reducing services because of the disappearing of local revenue would lead to closing businesses, an outmigration of residents from the coastal Southeast city and a “collapse of the social systems” in the community.

The U.S. Treasury released additional guidance this week that would allow governments to shift some employees onto CARES Act money, thereby easing some of the strain on local budgets where there’s been a pronounced response to the COVID-19 pandemic. Communities where the pain has been primarily economic will be in a tougher spot to put the money to use.

Nationally, conservatives have been more hesitant to come to the rescue of local governments devastated by the loss in revenue. Senate Majority Leader Mitch McConnell originally suggested that they should simply allow states to go bankrupt rather than provide additional help. He’s since backed down on such a drastic approach, but there’s still lingering skepticism about any “bailout” for state governments.

In his prepared statement, Alaska U.S. Sen. Sullivan echoed McConnell’s concerns that the money might go to patch existing budget holes.

“The CARES Act clearly intends these relief dollars to help local governments struggling financially as a direct result of the pandemic,” he said. “However, federal relief dollars should not be used to bail out governments that have mismanaged their finances for years with irresponsible decisions unrelated to this current global crisis.”

The proposed Coronavirus Relief Fund Flexibility Act specifically says the revenue replacement dollars apply only to “revenue shortfalls resulting from the” COVID-19 pandemic.