House Finance Committee to start planning how to spend $1 billion in new federal COVID-19 relief

JUNEAU, Alaska (KTUU) - By the end of the week, the House Finance Committee will start planning how to spend some of the $1 billion allocated to the state of Alaska from the latest round of federal COVID-19 relief.

Rep. Neal Foster, D-Nome, told the committee on Tuesday that the Legislative Finance Division will prepare a list of budget items that are virtually certain to be allowable expenses.

“They’ve got an idea on what we can put in the budget and we’re hoping to put that in now and pass it over to the Senate, and they can fine-tune it later,” he said.

Waiting for that list has delayed when the House Finance Committee will hear amendments to the operating budget until early next week. That comes after the House of Representatives took one month to organize and start hearing bills.

“We’re two or three weeks behind where we should be right now, so I just hope we can get it moving,” said Rep. Steve Thompson, R-Fairbanks.

The Legislature is also waiting for official guidance on how to spend the American Rescue Plan funds from the U.S. Treasury Department. If the state doesn’t comply with those rules, it risks needing to repay the federal government.

Gov. Mike Dunleavy wants to use some of that funding as part of a tourism aid initiative to market Alaska as a destination during the COVID-19 pandemic and to help the struggling visitor industry sector. He said his proposed tourism package would be unveiled later this week.

Alexei Painter, head of the Legislative Finance Division, told the House Finance Committee last week that municipal school construction costs should qualify for the federal relief, but no one knows yet about the Permanent Fund dividend.

“That’s the million dollar question,” Foster said.

The deadline to receive the guidance from the federal government is May 10, just nine days before the 121-day constitutional session limit. The plan is to adjourn on time after passing a budget, but that could be a scramble.

There is also a plan among legislators to spend the $1 billion over two years with roughly $500 million kept in reserve for 2022, an election year.

Senate President Peter Micciche, R-Soldotna, said no one knows what will happen with COVID-19. Keeping hold of some of that federal funding would ensure the Legislature could respond if the effects of the pandemic linger, he added.

Legislators may also not have a choice when they spend that money.

Sarah Needler, director of research from the Council of State Governments, gave a presentation to the House Finance Committee where she said the federal funds are set to be disbursed in two tranches: one would arrive just after May 10 and another some time later. Alaska could qualify to receive it all in one batch, based on unemployment numbers, but no one knows yet if that will happen.

From what little information the Legislature has been able to divine about the American Rescue Plan, it appears that the federal funding can be used to pay for services equal to the amount the state lost in revenue due to the COVID-19 pandemic.

Painter explained that because Alaska saw such a precipitous revenue drop in 2020 with a crash in oil prices, the Legislature could theoretically use hundreds of millions from this package to put in the budget.

Despite $1 billion being just under a quarter of the state’s contribution to the annual operating budget, Sen. Bert Stedman, R-Sitka, urged caution when thinking what impact that would make.

“It’s just frosting on a lumpy cake to make it look nice and smooth,” he said. “It does not fix the structural deficit.”

Both the House of Representatives and the Senate are planning to debate the size of the 2021 dividend separately to the budget, but like in recent years, legislators are likely to introduce dividend amendments to the budget, bringing that debate forward.

To pay a statutory dividend at roughly $3,000 per person would cost close to $2 billion. To pay a dividend of $1,000 per person, as was paid in 2020, would cost around $666 million.

If the 2021 dividend qualifies to be paid with federal funding, that could ease concerns some legislators have about overdrawing the Permanent Fund.

In addition to the $1 billion in “flexible” funding allocated to the state of Alaska, another roughly $1 billion is set to head across Alaska in areas that can’t be changed, like rental relief.

Much of the funding does not require any action by the Legislature as it will be paid directly to groups like tribes. Other funding, like $227 million for local governments including Anchorage, is required to be approved by the Legislature.

Some federal funding for education could be in jeopardy.

Lawmakers learned last week that if the state does not receive a waiver, Alaska could miss out on upwards of $100 million from budget cuts made in previous years to the University of Alaska.

Neil Steininger, director of the Office of Management and Budget, explained to the House Finance Committee last Thursday that the federal government requires a “maintenance of effort” to receive the full $300 million-plus in education funding.

In effect, Alaska needed to keep spending a certain amount on schools and the state’s university before the COVID-19 pandemic began.

Budget cuts made to the University of Alaska as part of a compact between Gov. Mike Dunleavy and the Board of Regents may disqualify Alaska from receiving around a third of that federal education funding. Steininger said if OMB is told that is the case, the state will apply for a waiver from the federal government.

Painter urged caution about the possible maintenance of effort requirements, saying it didn’t impact what Alaska received from a previous COVID-19 package.

“The federal department has not given us clear information about the consequences yet,” Painter said via email. “Maybe if we applied without a waiver they’d give us some of the money but not all? We just don’t know.”