Judge rules critical Power Cost Equalization fund cannot be emptied as Dunleavy admin claimed

Gov. Mike Dunleavy. (Photo by Matt Buxton/TMS)

Gov. Mike Dunleavy was dealt yet another legal loss today when a judge ruled his administration was wrong to try to empty the Power Cost Equalization program’s endowment fund through a procedural budgeting maneuver.

Anchorage Superior Court Judge Josie Garton’s order bars the administration from transferring the roughly $1.1 billion endowment into the hard-to-access Constitutional Budget Reserve through the fund’s annual sweep provision, which requires previous withdrawals from the fund be repaid with money left over in the general fund. The lawsuit was brought by a collection of local governments, tribal groups and utilities led by the Alaska Federation of Natives, which called the planned move a “back-door veto” of the program.

The case is expected to be appealed to the Alaska Supreme Court, but an attorney for the state said last week that they did not plan on seeking a stay on the ruling.

In the immediate term, that means the source of money for the Power Cost Equalization program that helps some 82,000 Alaskans cope with the cost of energy in hard-to-serve communities will remain in place. Without funding for the program, some communities had expected energy bills to nearly double to, in some cases, nearly $300 a month.

“I’m extremely pleased with Judge Garton’s decision today to require that PCE funding for 2021 be immediately reinstated,” wrote Dillingham Rep. Bryce Edgmon on Facebook following the ruling. “I fully expect the Dunleavy Administration to follow through with its commitment to honor the court’s decision and begin funding the program ASAP. Although the Governor will likely file an appeal to the Alaska Supreme Court, today’s ruling made it very clear that the PCE program is critical in nature and deserves to be funded without delay.”

The fight over the Power Cost Equalization program has been brewing since Dunleavy took office in 2018. Under a 2019 legal memo by now-former (and now-disgraced) Attorney General Kevin Clarkson, the state broke from precedent by ruling that the Power Cost Equalization endowment fund along with several other funds should be subject to the annual sweep provision of the Constitutional Budget Reserve. While previous administrations considered funds created by the Legislature to be separate from the general fund, Clarkson argued if money can be treated like the general fund then they are the general fund.

The core of the case revolves around just what is and isn’t in the state’s general fund, a term that Judge Garton notes is not specifically laid out anywhere in the Alaska Constitution or state law. In evaluating this issue, she went through the history of the Alaska Constitution, the establishment of the Constitutional Budget Reserve in 1990, contemporary public statements by CBR backers and the subsequent lawsuits on the matter.

She ultimately ruled that the Legislature had the power to set up funds separate from the general fund prior to the establishment of the CBR and that nothing in the establishment of the CBR explicitly redefined the general fund.

“Judicial decisions prior to the adoption of the CBR amendment acknowledge the existence of the general fund, but also recognized that the Legislature could establish special or separate funds,” she wrote. “Given this authority, and given the absence of any indication in the legislative history that the CBR amendment was intended to circumscribe that authority or to define general fund more broadly than was already defined through statutes, this court concludes that the term ‘general fund’ does not include a separate fund of a public corporation. Accordingly, it does not include the PCE endowment fund.”

The Dunleavy administration has warned against this approach in dire terms, arguing that it would effectively render the Constitutional Budget Reserve’s repayment provisions meaningless. The Legislature, they argued, could simply avoid the repayment by essentially placing a sticky note on funds to call them something else than the general fund.

Garton’s ruling addresses this issue, but said without more explicit evidence supporting their argument that everything except for the CBR and the Alaska Permanent Fund being in the general fund she would “not lightly infer such a limitation.”

“The CBR must still be repaid,” she wrote. “But because the Legislature established the PCE Endowment Fund as a separate fund, it may not be swept pursuant to (the sweep provision in the Alaska Constitution). In addition, the funds validly appropriated by the Legislature from the PCE Endowment Fund for (this year’s budget) for the Power Cost Equalization program must be distributed … in accordance with the Legislature’s appropriation.”

In the big picture

This is a significant ruling with big implications for the Alaska budget and political landscape. Of course, that’s all with the caveat that the case is almost certain to be appealed to the Alaska Supreme court.

In terms of the budget, it gives the Legislature the power to set up semi-dedicated funds for specific programs without them being drained through the sweep. It’s a power that they’ve largely been exercising for decades, but could be expanded especially as the Legislature looks for ways to provide stable and dependable funding for some programs. The ruling also means that several funds that met the administration’s definition of what’s sweep-able but were spared from the sweep (some industrial development funds, pensions and the Alaska Permanent Fund’s earnings reserve account) won’t be dragged into the CBR.

In political terms, it takes away a significant piece of leverage Dunleavy and his allies have held over the Legislature. The status of the Power Cost Equalization’s endowment fund was expected to be a significant issue at the upcoming special session with Dunleavy and his allies hoping to leverage the three-quarter vote needed to reverse the sweep into a larger dividend and a slate of constitutional amendments. This ruling means that for now there’s a lot less pressure to get the costly three-quarter vote for the reverse sweep and the Legislature could avoid it altogether.

While the ruling ought to also extricate several other funds from the sweep, this lawsuit does not explicitly call out those funds. So, as it stands, funding for things like the state’s scholarship program and participation in the WWAMI program is currently unresolved.

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1 Comment on "Judge rules critical Power Cost Equalization fund cannot be emptied as Dunleavy admin claimed"

  1. Brad Faulkner | August 11, 2021 at 5:43 pm | Reply

    If memory serves me, the PCE was established in the late 70’s or.early 80’s as a compromise, to gain rural legislators support for the “Four Dam Pool”. The cities of Ketchikan, Wrangell, and Petersburg, Copper Valley Electric Association, Inc. and Kodiak Electric Association, Inc. all received hydro power funding with the support of rural legislators. The rail belt got further subsidies fore Bradley Lake hydro and Eklitna as well as never ending studies for the Susitna dam. It seems incredibly disingenuous on the part of the Dunleavy administration to now go after those funds.

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