‘It’s not actually promise,’ Dunleavy admin says of scholarship program promised to Alaskans

Hooding Ceremony at Wendy Williamson Saturday, May 4, 2013. (Photo by Erin Hooley/University of Alaska Anchorage Office of Advancement/Creative Commons)

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The Superior Court heard oral arguments on Tuesday in the lawsuit brought by several University of Alaska students challenging Gov. Mike Dunleavy’s decision to sweep the Higher Education Investment Fund into the Constitutional Budget Reserve. In it, the state argued the state actually has no obligation to support the performance- and needs-based scholarships promised to students.

The fund was set up under former Gov. Sean Parnell (now the UAA chancellor) as a means to fund scholarships in perpetuity through an endowment-style model and had done well enough to also start supporting the state’s medical student exchange program, WWAMI. It was one of the first funds that Dunleavy and former budget director Donna Arduin set their sights on when entering office as the fund’s roughly $400 million made for a prime target for one-time money. As we detailed in yesterday’s post, Gov. Dunleavy sought to weaponize whatever tools at hand to achieve his political goals. In this case, he sought to use a broadly expanded reading of the Constitutional Budget Reserve’s sweep provisions to attack the funding for programs that were otherwise out of reach with the other headliner being the Power Cost Equalization Fund.

What is the sweep, anyways? The Constitutional Budget Reserve sweep requires any money left over at the end of a budget year that’s available for appropriation (among several other factors) be swept into the Constitutional Budget Reserve to replace previous withdrawals. With the fund once standing at more than $10 billion, the sweep is expected to be a factor of Alaska budgeting for the foreseeable future. Once a perfunctory part of the process, the three-quarter vote in both the House and the Senate needed to reverse the sweep has become political leverage.

While the PCE Fund was ruled out of reach of the sweep in a lawsuit last year, that ruling didn’t directly apply to the Higher Education Investment Fund. Unlike the PCE Fund, the HEIF was established within the general fund and thus would satisfy one of the tests for sweep-ability.

This lawsuit argues that other factors should be brought into consideration when judging what is and isn’t available for appropriation. The argument is on the technical side of things but basically boils down to a question of how long appropriations last. The plaintiffs, represented in court today by former Alaska Attorney General Jahna Lindemuth, argue that the original appropriation that filled the HEIF is still valid and therefore the money cannot be swept.

Judge Adolf Zeman put it into plainer terms when he asked Assistant Attorney General Margaret Paton-Walsh how the Higher Education Investment Fund was different than any long-term appropriation for capital projects, like a bridge.

“Talking about a long-term construction project, how is that different than four-year education or medical school education in terms of the Legislature has chosen to invest its money in an endowment to pay these scholarships that students are relying on in the long-term?” he asked.

She replied that the key difference here is that the money doesn’t automatically come out of the Higher Education Investment Fund to pay for scholarships. The payment of scholarships as well as the payment of the state’s participation in the WWAMI medical exchange program require additional action by the Legislature, therefore making the entire underlying fund eligible to be liquidated. Students shouldn’t be counting on it, Paton-Walsh argued.

“The purpose of the fund is to create some sort of stability and a promise to students that they’re going to get money for the course of their education. It’s not actually a promise. It’s not a contract,” she said. “It’s all just discretionary. It’s all just words. The Legislature can honor it or not honor if it wants. It’s not like signing a contract with a contractor. … It’s not the same thing at all.”

In response, Lindemuth argued that the education of Alaskans should very much be considered like an investment in a road or bridge. She agreed that the Legislature can change its mind about the fund through future budgets but noted the Legislature can do just that with construction projects. She argued that setting up a fund to essentially fund scholarships into perpetuity should be viewed no differently than its investments in infrastructure.

“The Legislature can always change its mind in the future but that’s a lot harder to change the course of a program that’s been up in running versus a year-to-year appropriation that’s battling all the other monies. For the Legislature, it’s important for them to know they put a savings aside,” she said, likening the fund to a household savings account for vacations or projects. “It is a terminal appropriation, it’s something that the Legislature has said, ‘Here’s a priority for us.’ It’s the same as if it’s building a building.”

Judge Zeman said he plans to have a ruling on or before Feb. 22. The Alaska Legislature filed an amicus brief supporting the students’ litigation, which you can find here.

In the big picture: This is yet another attempt by Dunleavy to enact policy through the budget. He and Arduin never liked that the state had pots of money that were effectively put out of reach by previous legislators (see also: the state’s forward funding of education) and the CBR’s sweep is a clunky tool to achieve those goals. He argues that decisions about these programs—scholarships, Power Cost Equalization and K-12 education—ought to be decided on a year-by-year basis, competing with every other part of the budget. Legislators argue that it undermines their ability to plan ahead and make investments in specific areas, adding that his sweeps are upending sound investment practices and undermining returns. It’s a particularly interesting push and pull given that state’s transition away from traditional revenue sources to investment income through the Alaska Permanent Fund.

Follow the thread: Oral arguments in the HEIF lawsuit

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