The state’s Higher Education Investment Fund—the source for the Alaska’s university scholarship programs and the state’s participation in the medical school exchange program WWAMI—can be liquidated as Gov. Mike Dunleavy has sought, a judge ruled today.
Anchorage Superior Court Judge Adolf Zeman today rejected a case brought by several University of Alaska students seeking to protect the roughly $400 million fund, whose earnings are used to fund scholarships and the medical school exchange program. The legal question at the heart of the case is whether the fund is subject to the Constitutional Budget Reserve’s reverse sweep provision, which requires any available funds be liquidated in order to repay past withdrawals.
Judge Zeman ruled the Higher Education Investment Fund is subject to the sweep, finding it meets the standards of it being available for appropriation and within the general fund.
Gov. Dunleavy and his administration have been particularly aggressive in expanding the sweep, using it to target several state programs and their funds that previous legislators and governors had hoped to spare from the annual budget fight. The governor argued the programs should be eliminated or compete with other spending—like the dividend and oil tax credits—on an annual basis. During the trial, Assistant Attorney General Margaret Paton Walsh argued that the students had no special right to the funds.
“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 argued. “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.”
The plaintiffs argued there was a matter of timing involved in the case. They argued the initial appropriation that created the Higher Education Investment Fund was still valid and therefore the money was appropriated for a purpose—the purpose of funding scholarships—and would not qualify the sweep’s test of funds available for appropriation. Former Attorney General Jahna Lindemuth argued that the fund should be viewed similarly to capital spending on construction projects that take multiple years to be spent but are not targeted by the sweep.
“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.”
Zeman found the timing argument unconvincing, noting nothing in the previous cases relating to the sweep made any mention of timing being a factor. If it mattered, he said, it would’ve been addressed.
The other factor of the sweep’s test of whether a fund is part of the state’s general fund was never disputed in this case. State law explicitly says the fund is part of the general fund.
This is the big difference between the Higher Education Investment Fund and the state’s Power Cost Equalization fund, which Dunleavy also targeted with the sweep. In a case last year, a judge ruled that fund—which helps Alaskans with high-cost energy in rural communities—was protected from the sweep because the PCE fund is explicitly created outside of the general fund.
Judge Zeman concluded his ruling, noting that it is not an automatic death knell for the state’s scholarship program.
“The programs the HEIF currently helps fund—the Alaska Performance Scholarship, Alaska Education Grants and WWAMI—do not have to become obsolete following the court’s decision here today,” he wrote. “If the Legislature believes these programs should be funded, it possesses the power to establish the HIEF as a separate fund outside the general fund or to appropriate money from other sources—for example, a reverse sweep of the CBR—to fund the programs in the future.”
Zeman notes that the court cannot force the creation of such funds.
His order can be appealed to the Alaska Supreme Court. Dunleavy declined to appeal the ruling in the Power Cost Equalization fund to the Supreme Court, avoiding any additional precedent being set.
Why it matters: It’s very bad news for University of Alaska students relying on these programs. While the Legislature certainly has the votes to fund these scholarships on an annual basis, it opens them to the target of the governor’s veto, which the Legislature does not have the votes to override (45 of the entire Legislature). Nor does the Legislature have enough votes to enact the reversal of the sweep—which also requires a three-quarter vote in each chamber—thanks to Dunleavy-aligned Republicans using it as leverage for a larger PFD and other conservative priorities, like anti-abortion measures.
The same would go for the establishment of the fund outside of the general fund. Even if the Legislature were to muster the support to establish a new version of the Higher Education Investment Fund outside the general fund, it would be a likely target of a veto by Dunleavy.
While Dunleavy has generally voiced support for the scholarships themselves, he’ll have the final say on whether the scholarship program lives or dies as long as he’s in office.