‘We are facing the destruction of our economy.’ Businesses demand fixes to state relief program

(Photo by Matt Buxton/TMS)

In May, Gov. Mike Dunleavy excoriated legislators on social media when they didn’t immediately sign off on his proposal to distribute some $290 million in federal relief to small businesses. Wary about the legality of the governor’s plan as well as the haste in cobbling together the program, several legislators said the best route would be to return to Juneau to properly vet the program through the normal legislative process.

“$1.5B sent to AK in record time by Congress and Donald Trump to mitigate disaster,” Dunleavy tweeted. “Yet #akleg will not act to put $$$ in the hands of Alaskans during their time of need. Why? Alaskans need help NOW. Not tomorrow or next week. NOW. What will history say? Did #aklegfail the people in their time of need?”

Legislators eventually returned to Juneau, prodded by a lawsuit, to approve the program though those hoping for the normal legislative process would be disappointed. They would sign off on the program without any changes to the program the governor ultimately submitted.

“Last night, the Legislature finally approved my CARES Act relief plan,” Dunleavy wrote on May 12. “We will soon be distributing funds to Alaska’s small businesses, non-profits, local communities and more.”

But nearly two months later and the program is an abject failure, riddled with a mixture of self-imposed limitations on the program, an abysmally slow approval rate, conflicting advice and further legal challenges.

The governor’s team had pledged to distribute as much as $150 million in the first month of the program. As of a hearing last in front of the House Labor and Commerce hearing last week, the state had distributed a grand total of $6,394,154.25 in grants to about 10 percent of applicants.

The reality for small businesses around the state is dire. Several businesses and local business groups testified at last week’s hearing that they’re on the edge and in the dark.

“What we are facing is the destruction of our economy,” said Bill Popp, the president and CEO of the Anchorage Economic Development Corporation. “Significant destruction of aspects of our economy, where nothing will be left standing in many cases in terms of the businesses that previously existed if we do not take extraordinary steps to get this hundreds of millions of dollars that’s basically sitting there inches away from those who need it, desperately, and getting it out into the economy.”

He called the COVID-19 pandemic’s impact on the economy and “ongoing disaster” that will continue to play out for many months, urging legislators to help fix the program so more businesses can access the funds quickly in order to stay afloat.

“I cannot urge you enough to think about this in terms of not only the businesses that are high-risk of going under if we do not do something soon but also the very concept that’s being touted often about getting our workers back to work,” he said. “Where are they going to work if these businesses are gone? There’s not some magic job tree out there. … These are the businesses we are relying on to get our Alaska citizens back to work.”

Other testifiers outlined significant confusion about how the Alaska CARES Act program has been run through Credit Union 1. During two previous hearings, the state pledged to bring on additional grant operators but have reported little, if any, progress to the Legislature.

One testifier with a background in economic development told the committee that he had applied on the very first day the program went live and has spent the month since then checking his spam filter for any update whatsoever. He’s received no calls, emails or letters.

“The bottom line is what comes to mind is the Titanic is sinking with lifeboats on board,” he said. “The cash is there; the intentions are there. We fit this program, but it has been 30 days today with no correspondence at all. … We’ve got the cash to try to help people last a little bit longer and if we dilly dally as I’m seeing with our particular application and we’re not getting the cash to the businesses to survive a little bit longer, it’s too late.”

Another caller noted that they were able to have a single banker approve about 10 federal payment protection loans a day, noting that the rate for the entirety of the Alaska CARES Act program seems to be well under what a single banker could do.

Anchorage Democratic Rep. Ivy Spohnholz chairs the House Labor and Commerce Committee, which has held several hearings on the progress—or lack thereof—with the Alaska CARES Program. She said the failings go back to the beginning of the process and said she supports a legislative fix.

“The program has been a series of unfortunate events,” she said in an interview with The Midnight Sun on Tuesday. “There was so much reticence on the part of legislators about returning to Juneau, we ended up not going through the traditional process for appropriating the funds, which led to not getting enough public input and this program was, I think, not as thoughtfully conceived as they could be. It wasn’t very well thought-out.”

She said issues like commercial fishermen’s access to the funds could have been raised during the hearings, as well as the issues created by the program’s blanket ban on businesses that have received federal funds. The state has provided a new interpretation of the program, allowing businesses that have received under $5,000 to apply (which has been met with a legal challenge because the law definitely says any amount of money would disqualify them) and has also suggested that businesses simply refund their federal money.

Spohnholz noted that there’s not even a clear process for returning the money.

“They’re learning how to fly the plane while building it and while flying it,” she said. “They’re trying to do a lot very, very quickly and are struggling, but the problem is people’s livelihoods are on the line here. We need to find out how to solve this very quickly so Alaskan small businesses will survive.”

Given the pending changes to the program, too, that may allow businesses to keep the federal money or keep the money and split the difference with the state program, one business owner told us the state’s advice about refunding the money is “wildly irresponsible.”

And that’s not to mention that businesses could face a months-long wait to receive any state funding.

What’s ahead

The House Labor and Commerce Committee will hold another hearing to gather public testimony on the program at 11 a.m. on Thursday, and Spohnholz says they plan to have another hearing next week with state officials.

She said the big factor in all of this will be the pending lawsuit brought by Juneau resident Eric Forrer and attorney Joe Geldhof. That was the lawsuit that initially challenged the legal process for creating the program, driving legislators back to Juneau, and was later amended to challenge the state’s legally dubious changes to the program.

Oral arguments in that case are scheduled for 9 a.m. Thursday. (I plan on live-tweeting the proceedings here.)

Spohnholz said it’s possible that the court could sign off on the program and its fixes, but she’s skeptical.

“If we need to go back to Juneau, I’m happy to do that in order to ensure small businesses get the support they need,” she said. “But I don’t want to go back to Juneau, I don’t think anyone wants to go back to Juneau. I just feel like we might need to do it.”

Proposed changes

Tim Dillon, the executive director of the Kenai Peninsula Economic Development District, opened the hearing with a series of recommendations to fix the program and outlined confusion and heartache throughout the cities covered by his organization.

He said the Legislature should return to pass a new law that would make the following changes to the program:

  • Allow businesses that have received any amount of federal aid to apply for the program (the program, as approved by the Legislature, bars businesses who’ve receive a single dollar of federal aid from)
  • Allow commercial fishermen to use their permits in place of business licenses (after the Legislature approved the program, the state added the requirement for a business license)
  • Allow nonprofits like local chambers of commerce and local economic development organizations to apply for funding
  • Give the Department of Commerce the ability to change the program.

He noted that even if the program solved its bureaucratic mess and approved every single pending application that only about $70 million would go out to businesses.

“Unless we plan on returning over $200 million, we need to make suggested changes now,” he said. “I get the fact that some of the legislators don’t want to go to Juneau because of other issues but if you care at all about this great state of Alaska you will go to Juneau now and pass this proposal because businesses and nonprofits cannot wait another 30, 60 or 90 days,” he said. “Fly in in the morning, get this taken care of and fly home that night. We will help you get it done.”

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