Giessel, von Imhof ask Mnuchin about restrictions on CARES Act spending

  • Alaska Senate President Cathy Giessel, right, speaks to Senate Finance Committee co-chair Natasha von Imhof during a break in a budget conference committee meeting on May 13, 2019, in Juneau. The two senators sent a letter to U.S. Treasury Secretary Steve Mnuchin on April 9 asking what Gov. Mike Dunleavy may not spend federal funds on for coronavirus relief. (Photo/Becky Bohrer/AP)

Two Alaska Senate Republican leaders have asked Treasury Secretary Steven Mnuchin what states can’t spend COVID-19 relief funds on after Gov. Mike Dunleavy said several of the items he vetoed from the state budget will be covered with the federal aid.

Senate President Cathy Giessel and Finance Committee co-chair Sen. Natasha von Imhof sent a letter to Mnuchin April 9 seeking clarifications as to what Dunleavy is not allowed to spend the more than $1.25 billion the State of Alaska is set to receive in COVID-19 relief funding from the $2.2 trillion Coronavirus Aid, Relief, and Economic Security, or CARES, Act passed by Congress in late March.

On April 7 Dunleavy announced more than $210 million worth of line-item vetoes to general fund spending across a suite of programs in the fiscal year 2021 state operating budget as collapsed oil prices again worsen the state’s structural annual deficit. He said in a press briefing, however, that federal CARES Act funds would be used to backfill the vast majority of the vetoed state money, including funds for programs Dunleavy has previously battled over with legislative leaders.

Officials in the governor’s office said the letter misrepresents what the administration is attempting to do with the CARES money, contending money that would flow directly to large cities elsewhere in the country will have to be distributed to local governments by the State of Alaska because no communities in the state are large enough to meet certain provisions in the massive federal aid package for cities of more than 500,000 people.

Dunleavy’s spokesman Jeff Turner wrote in an emailed statement that the letter “contains some inaccuracies about the CARES Act.”

“There are several sections within the CARES Act that contain federal funds for specific state programs like K-12 public/university education, transportation and local governments. Those sections are outside of the $1.25 billion the state will receive later this year.

“Gov. Dunleavy, like other governors around the country, are waiting for additional guidance from the Treasury Department on how the administration can distribute federal CARES Act funds,” Turner wrote.

Giessel and von Imhof wrote in a joint emailed statement: “While we share the governor’s hope that these programs can be made whole with federal funds, we also understood it to be our responsibility as the appropriating body to do our due diligence and receive formal clarification.”

The letter to Mnuchin was copied to the members of the federal delegation but not the governor’s office.

According to documents prepared by the Office of Management and Budget, the administration plans to use CARES money to cover nearly $208 million worth of vetoed items, most of which pertain to community assistance funding, K-12 education and the share of school bond debt reimbursed by the state each year.

Dunleavy said the $100.1 million in school bond debt payments he vetoed would be covered under the CARES Act because local governments across Alaska are going to lose tax revenue due to the statewide economic shutdown enacted to slow the spread of the virus.

The governor also vetoed a $30 million K-12 education appropriation made by the Legislature outside of the state’s typical education funding formula and another $30 million in community assistance grants approved in the supplemental budget for the current 2020 fiscal year that ends June 30.

Linking the vetoes to the CARES Act drew a sharp response from House Speaker Bryce Edgmon, I-Dillingham, who called the approach “incredibly troubling” and claimed the governor is using the pandemic to justify vetoing budget items he never supported in a formal statement.

The senators’ letter to Mnuchin describes eligible expenditures for CARES Act funds as those directly related to the COVID-19 emergency; those not accounted for in the most recently approved budget and expenses incurred from the beginning of March through the end of December.

“Legitimate COVID-19 related funding concerns, subject to the provisions of the CARES Act, are expected. For example: Items that are directly COVID-19 related that were not considered in FY20 (either through the operating budget or its supplementals) are anticipated. But can the Governor claim to veto items in the FY21 budget, even if the funding is not directly related to COVID-19 health crisis (like school bond debt reimbursement or covering operational costs for the Alaska Marine Highway System)?” the letter asks.

Giessel and von Imhof also noted a $12.5 million veto to the University of Alaska budget in the letter to Mnuchin. Dunleavy said April 7 that veto was to return the spending to the amount agreed to last year with the board of regents in a three-year compact.

Last June, Dunleavy vetoed more than $440 million from the 2020 budget — which included reducing the school debt and community assistance payments — following a contentious and prolonged budget process. Those vetoes helped spur an ongoing effort to recall him from office.

According to Office of Management and Budget estimates, Alaska will receive $38.4 million in K-12 funding, $10.5 million in higher education funds and $6.6 million in governor’s emergency education relief funds.

Further, it’s the administration’s position is that the school bond debt payments are discretionary and transferring money to local governments is a state expenditure that should be covered, in part because the fall in oil prices over recent weeks has reduced the state’s 2021 forecasted revenue by more than $800 million, or about 17 percent of the overall budget.

According to the governor’s office, Dunleavy likely would have made the same vetoes had the state’s fiscal picture similarly deteriorated without the pandemic.

Oil prices started falling in late February from a fairly steady plateau in the mid-$60s per barrel as global oil demand fell off after China implemented widespread travel restrictions. Prices went into a tailspin — hitting close to $20 per barrel — starting in early March when Saudi Arabia and Russia started a price war that was just settled April 12 in a broad deal to cut global production by nearly 10 percent.

The state has traditionally paid the majority of the debt service incurred by local governments for school construction under a statutory program that the Legislature suspended in 2015. Lawmakers have continued to fund debt service for bonds sold when the program was active, but the final assistance is subject to the annual budget process. Last year, Dunleavy halved the state’s school bond debt reimbursement payment to $49 million and vetoed another attempt to restore the funding.

The administration also doesn’t intend to use CARES money to supplement state ferry operations, which have been minimized as travel has been curtailed, officials in the governor’s office said, adding that Dunleavy has spoken with Mnuchin twice about the federal aid.

Elwood Brehmer can be reached at [email protected].

Updated: 
04/14/2020 - 10:17am