Legislature pushes past constitutional issues to approve more than $1 billion in revised CARES Act spending

The Legislative Budget and Audit Committee meets in Anchorage on May 11, 2020.

At the end of a lengthy—and at times emotional—meeting of the Legislative Budget and Audit Committee, the Legislature has finally approved all of the state’s requests to disburse more than $1 billion in federal coronavirus relief money to communities and small business relief programs.

Legislators spent much of the meeting debating the constitutionality of handling Gov. Mike Dunleavy’s requests with a process that, by law, is designed to increase existing federal funding for existing state programs. While some worried about handing over an unprecedented power to the governor, the majority of legislators cited the unprecedented nature of the COVID-19 pandemic to justify looking the other way.

The action comes after several weeks of pushback between the Legislature and the governor on not just the process for spending the federal relief money but also on how that money will be spent.

Sen. Lyman Hoffman, D-Bethel, was one of the most outspoken in the need to get the money out quickly, saying the Legislature had already wasted too much time.

“To me, the arguments are asinine, to say the least, when these are people, United State citizens, that are facing COVID problems. They are real problems that need to be addressed,” he said. “My concern is that we are fiddling around, twiddling our thumbs, not taking the action necessary to dispense these funds out to the people.”

The big-ticket items approved at the meeting include the following:

  • $257 million to be paid to local governments through the existing community assistance program formula
  • $290 million in cash grants to qualifying small businesses with 50 or fewer employees
  • $311 million to be paid to local governments through a vague formula based on some “economic activity metrics” collected by the state
  • $100 million in federal authority for fisheries relief (though Alaska is only set to receive $50 million)

The money will go out despite the Legislature’s legal and financial analysts’ warnings that they don’t abide by the law and could be vulnerable to a legal challenge. The Dunleavy administration offered no legal opinion that challenged their assessment of the issue.

Several House Democrats warned that a potential legal challenge, such as one brought by a community that felt slighted by the governor’s distribution of economic relief money, could tie up money even longer than the three weeks that others had complained about.

Legislative Budget and Audit Committee Chair Rep. Chris Tuck, D-Anchorage, was one of the most vocal advocates of following the letter of the law on the process. He argued that the Legislature should have, as he had recommended, returned to Juneau three weeks ago to pass a fully vetted appropriations bill. In a more emotional exchange, Tuck said he couldn’t ignore the problems especially when there had been no effort to defend the legality of the process.

“We should err on the side of the Constitution,” he said. “I’m not going to play stupid to get along.”

Sen. Bert Stedman, R-Sitka, had originally supported returning to Juneau to pass new appropriations bills but at the meeting sided with using the current process. He added that if a legal challenge does arise, then the Legislature could return to session and pass a new appropriations bill to ratify the programs.

“As far as the legalities, we’ve been working through that issue for the last three weeks daily,” he said. “We recognize it’s unprecedented times and we’re pushing the bounds in some directions, but we also have the ability if there is a so-called legal challenge, we could go through the ratification process when the Legislature reconvenes sometime in the future and bless the activities of the Legislative Budget and Audit Committee. There might be a lot of technical and bureaucratic reasons why we shouldn’t move forward, but we have an emergency affecting all Alaska citizens.”

Tuck ultimately objected to approving the requests and, as the chair, moved to table them as out of order. He was overridden on a 7-3 vote. The requests were then approved unanimously.

Last-minute revisions

The Legislative Budget and Audit Committee is limited in what it can do with spending requests from the governor. It cannot amend the requests and is limited to voting them up or down (and even then, the governor can still push ahead with the spending as long as he abides a waiting period on the funds).

Still, as the Legislature and governor went back and forth on the funds, the governor offered several revisions to the proposals that added much-needed clarity and certainty to how that money would be spent. The most significant revision was delivered to the committee this morning, revising a $290 million small business relief program from a vague loan program to a clearly defined cash grant program.

The change meets a recent push for the state to move away from loans, which could be an extra layer of risk for businesses facing an uncertain future, to more useful cash grants aimed at keeping businesses alive until business can largely return to normal. The House had held several hearings on this issue, including one on Friday.

“Collateral requirements and personal guarantees only add to a business owner’s financial burden in a time when any incoming revenue is uncertain,” Sarah Leonard, the president and CEO of the Alaska Travel Industry Association, told the House Labor and Commerce Committee on Friday. “The CARES Act loans, even at low interest, must be repaid and for businesses already in debt, this will only add to the slow recovery of the business and the Alaska tourism economy. Changing loans to grants to support tourism businesses now may help them stabilize and be ready to recover when it’s safe to travel again.”

According to documents provided to the Legislature with the request, the grants could vary in size from $5,000 to $100,000 directly to businesses with 50 or fewer employees that are impacted by COVID-19.

The program is intended to cover gaps not covered by existing programs like the federal Payment Protection Program, which infamously ran out of money almost immediately as big companies jumped in, so business that have already received PPP or Economic Injury Disaster Loans would not be eligible as the program is currently proposed.

Rep. Andy Josephson, D-Anchorage, said he was still concerned about the legality of the process but said this revision was significant and that the difference between a loan and a grant could make a world of difference for a small business trying to survive through the economic turmoil of the months ahead.

“Might that change the destiny of a small business? I think it might,” he said. “To the extent that any delay was caused by the committee to refashion this, boy, that sounds really significant to me and makes me happy for the delay.”

Unresolved issues

The big ongoing issues with all CARES Act funding are the strings that come attached with federal money and the state’s ability to enforce those rules on a local level.

Municipalities can spend the money broadly but are explicitly barred from using it to replace lost revenue, which leaves many communities in a tough bind. They’ll have significant budget holes due the loss of tax revenue that cannot be filled with CARES Act money (at least for now).

That’s created concerns that some communities will not be able to spend all the money they’re given but without any explicit legal authority over the money, the state will be unable to recuperate or redistribute money once it goes out the door.

If the federal government finds that the state has allowed money to be spent outside the letter of the law, it’s possible that the federal government would go after the state to seek repayment of the money. The state’s ability to then go after local communities, though, would be limited without a change in state law.

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