Bungled state small business coronavirus relief program faces new legal challenge

There’s been nothing fast or simple about the state’s small business relief program, which has paid out grants at a glacial pace while limitations written into the program have created a nightmare situation where businesses are searching for ways to refund money to the feds.

Now the state’s piecemeal fixes—which many businesses and business groups said didn’t go far enough to helping businesses on the brink—are the target of a new legal challenge, arguing the state doesn’t have the power to unilaterally change the hastily constructed program.

Last week, the state announced it would allow businesses that received less than $5,000 in federal aid to apply for the state-run relief program and others could refund their federal aid. That’s despite language in the original program, which was approved by the Legislature, saying businesses that received any amount of federal relief funding—even as little as $1,000—were not eligible to receive state aid.

The limitation were intended to make the state money available to businesses that had not received any aid, but in many cases it’s meant businesses that have received as little as $1,000 are now barred from applying for grants worth between $5,000 and $100,000.

According to a report by the Anchorage Daily News, Juneau attorney Joe Geldhof asked the courts in a new filing Monday for a preliminary injunction to halt the program and give the Legislature an opportunity to review and approve the changes.

“… The executive branch has embarked on a plan for expending public funds by which there are no standards,” the filing argues. “The constitutional requirements that public funds be expended via the appropriation process are being ignored and now the executive branch is setting aside the minimal standards they originally advanced.”

The new legal action doesn’t come as a surprise and was actually discussed during a legislative hearing last week. Legislative Legal Affairs Director Megan Wallace said there’s a legal basis for challenging the administration’s changes but acknowledged everything about the process has been unprecedented.

The creation of the program has faced legal hurdles from the start.

The Dunleavy administration sought to create the program through a process that is typically reserved for when the Legislature is out of session and to increase existing federal programs, neither of which applied to this program. Geldhof and plaintiff Eric Forrer filed a lawsuit against the program, which prompted the Legislature to hastily return to Juneau and approved the program.

Now they’re arguing that the Legislature must approve these changes but acknowledged it may be difficult given the “variety of problems related to the dysfunctional political environment that is part of contemporary Alaska.”

The Department of Law defended making the unilateral change last week, saying it had reinterpreted the program and saw the new limit as within the department’s authority. As for the $5,000 limit, Assistant Attorney General Bill Milks said it was based on some comments during the legislative hearings.

As for the real-world impact of the dysfunction, several businesses testified last week that the state program has created an additional layer of confusion and economic stress.

“It’s been nothing but hurt,” said one Anchorage business owner who said they were denied federal aid but still received $2,000. “For $2,000, it means that I can’t apply. ”

Other business leaders called for the state to be clearer with the system and expectations of businesses.

“I want to make sure everybody remembers that the business owners did exactly what they were told to do,” said Tim Dillon of Kenai Peninsula Economic Development District. “Exactly what the congressional delegation, the state administration, state legislators, small business administration, the ARDORs, local government specialists told them to do and that was to apply for PPP the other program and now they’re being penalized.”

At the time, the state was unable to outline the process for returning the money to the federal government or what that would mean for the 26 businesses that have had their applications already rejected.

Business leaders urged a more flexible approach to the spending, one that would meet the needs of businesses throughout the state.

“Restrictions are causing more harm than help,” said Shirley Marquardt, the executive director of the Southwest Alaska Municipal Conference, “As a cautionary note on the $5,000, from what I’m hearing from the businesses in my community, the $5,000 limit to previous federal funding will leave a great majority of those businesses in the exact same position they are now.”