Alaska Supreme Court rules against UA students in scholarship case, leaving issue to legislators

A lawsuit brought by a group of University of Alaska students in an effort to protect the state’s scholarship fund from being liquidated by Gov. Mike Dunleavy has come to a disappointing end.

After hearing oral arguments on Tuesday, the Alaska Supreme Court has upheld a Superior Court decision that found Dunleavy’s expansion of the Constitutional Budget Reserve’s sweep that targeted the funding source for the state’s scholarship programs was, in fact, legal.

With a full opinion expected at a later date, the Alaska Supreme Court’s order doesn’t delve into any details. Superior Court Judge Adolf Zeman found the Higher Education Investment Fund met the requirements for the annual sweep but noted that the Legislature could set up a separate fund outside the reach of the sweep.

“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.”

The attorneys for the University of Alaska students had argued that the establishment of the scholarship fund was meant as a lasting promise to students and should be treated akin to the multi-year appropriations for things like bridges. The Dunleavy administration’s attorneys argued there was no promise.

“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,” said Assistant Attorney General Margaret Paton-Walsh during the Superior Court arguments. “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.”

That means restoring a stable and long-term source of funding for the scholarships will require action by the Alaska Legislature. The House has already passed two bills that would achieve this goal, including a budget that would restore $359 million to recapitalize the fund. The Republican-controlled Senate has not yet acted on any of these issues.

The most-recent development on this front was the House’s passage of House Bill 322 earlier this week, which would establish the Higher Education Investment Fund as well as the Alaska Marine Highway System Fund and the Alaska Marine Highway Vessel Replacement Fund outside the reach of the sweep. It passed the House on a 25-15 vote.

The legislation, as well as the funding, would need to be approved by both the Republican-controlled Senate and Gov. Dunleavy. While Dunleavy has nominally voiced support the programs, he and his supporters have argued against creating a dedicated fund and instead have argued that it should be funded year-by-year, battling with every other program in state government.

Supporters of the fund have argued that stability and separation from the annual political battles is necessary for students to be confident that the funding will be there throughout their time in college.

Background

The sweep is an annual occurrence outlined in the Alaska Constitution that requires any funds leftover at the end of the year to be transferred into the Constitutional Budget Reserve in order to pay back any previous balances. The fund was once north of $10 billion but was drawn down near to zero as the state’s revenues collapsed with the fall of oil, which means the sweep is expected to be part of the annual budgeting battle for the foreseeable future. Withdrawing funds from the CBR requires a three-quarter vote of each chamber of the Legislature, which also been impossible to achieve in recent years.

The Dunleavy administration has weaponized the Constitutional Budget Reserve and the reluctance of hardline Republicans to support the reverse sweep to target funds and programs that have traditionally been outside the reach of the annual budget fights and the governor’s veto pen. That included the Higher Education Investment Fund, several of the Alaska Marine Highway System funds and the Power Cost Equalization endowment fund.

The lower court’s ruling centered around the fact that the Higher Education Investment Fund was specifically established within the state’s general fund, meeting one of the requirements set out in other litigation for deciding what is and isn’t subject to the annual budget sweep.  

A separate court ruling found that the PCE fund was protected against the sweep because it was specifically created outside the general fund.