Dunleavy announces he will not challenge ruling that restored funding to PCE

The 82,000 Alaskans living in high-cost communities can now, truly breath a sigh of relief now that this year’s funding for the Power Cost Equalization program is no longer in jeopardy.

Gov. Mike Dunleavy announced today he will not appeal a ruling that found his administration was wrong to try to drain the $1.15 billion endowment fund that powers the program. On Wednesday, Anchorage Superior Court Judge Josie Garton ruled in favor of a group led by the Alaska Federation of Natives that argued the Dunleavy administration’s targeting of the fund through budget maneuvering was not supported by the Alaska Constitution, precedent or related legal rulings.

The administration had argued every single spendable state dollar other than what’s specifically mentioned in the Alaska Constitution (the Constitutional Budget Reserve and the corpus of the Alaska Permanent Fund) must be subject to Constitutional Budget Reserve’s repayment provision—known as the sweep. The sweep requires any available funds in general fund be transferred into the CBR to repay previous withdrawals from the account. The CBR requires a three-quarter vote of each chamber to access, which means reversing the sweep is an extremely high bar.

Her ruling ordered the state to abandon its plans to empty the account and put the program back into operation.

Most had anticipated the fate of the Power Cost Equalization program would have featured heavily during the fall special session set to start on Monday. It stood to be significant leverage as Dunleavy-aligned Republicans have already made clear that they hoped to get several of the governor’s political priorities—a larger PFD, anti-abortion language in the budget and a slate of constitutional amendments to name a few—in return for their votes on the CBR.

Now with the PCE program safe from the sweep and safe from chance the ruling could be overturned by the Alaska Supreme Court, there’s far less pressure for the Legislature to muster the votes to reverse the sweep this fall.

In a prepared statement, the governor said he had just been looking for clarity and renewed his pitch for a constitutional amendment that would enshrine the dividend in the Alaska Constitution, dedicating half of the spendable investment earnings of the Alaska Permanent fund to the payout. In a move this summer, the governor proposed adding the Power Cost Equalization program to the amendment.

“My administration welcomed this opportunity to get clarity from the courts on this critical fund which provides an essential service to rural communities across the state,” he said. “The court did not address an important political challenge: at any point, the PCE fund can be raided by the legislature with a simple majority vote. That is why my proposed constitutional amendment that enshrines and protects the PCE endowment must pass this year.”

However, some legislators have pointed out that the proposal does not dedicate any specific amount of spending to the Power Cost Equalization program. Instead, the currently proposed language leaves the size and scope of the program up to the Legislature to decide, which some have worried may lead to an intentional underfunding.

The ruling in the big picture

While the ruling won’t result in an expansion of the sweep as Dunleavy had hoped, it’s unclear what will happen to the other programs affected by the administration’s actions. Judge Garton’s ruling dealt only with Power Cost Equalization’s endowment fund, which means the governor is not currently barred from targeting funds like one that pays for university scholarship for Alaska high school students and the WWAMI program that allows Alaska students to get cheaper tuition at other Pacific Northwest states or funds like the state’s vaccination program (which existed pre-pandemic and helps in lowering the cost of children’s vaccines).

By not appealing the case to the Alaska Supreme Court, Dunleavy also avoids the risk of the Alaska Supreme Court issuing an expanded ruling finding his other plans to drain the other non-PCE funds were also wrong.

Still, Judge Garton’s ruling sets some significant precedent that may have long-ranging impacts for state budgeting. In ruling the Power Cost Equalization fund cannot be subject to the sweep, she found the Legislature has the power to set up semi-dedicated funds outside of the state’s general fund and therefore outside the reach of the Constitutional Budget Reserve’s sweep provisions. That means the Legislature can set aside money in endowment-like investment accounts to power specific programs, an increasingly attractive move given the investment market’s strong performance.

However, the governor is correct that such attempts to sock away money is vulnerable to the whims of future legislators. It would take a majority of the Legislature to alter the laws guiding the program or to dip into the endowment fund through the regular budget process. It’s important to note, however, that the Power Cost Equalization program is not at any more risk than any other state law or budgetary item.