Anchorage judge hears arguments in college scholarship fund dispute

An Anchorage Superior Court judge heard oral arguments in a lawsuit challenging the administration’s decision to drain the state’s scholarship fund.
Published: Feb. 8, 2022 at 4:56 PM AKST
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JUNEAU, Alaska (KTUU) - An Anchorage Superior Court judge has heard oral arguments in a lawsuit filed last month by four college students against Gov. Mike Dunleavy, challenging the administration’s decision to drain the state’s $422 million scholarship fund.

The legal dispute has its origins in a 2019 legal interpretation written by Kevin Clarkson, Dunleavy’s former attorney general. It broadened which accounts should be drained into the Constitutional Budget Reserve if the Legislature failed to pass an annual procedural vote.

For the first time, the Higher Education Investment Fund was on that list and last year, the Legislature did fail to pass that annual three-quarter vote.

Jahna Lindemuth, a former attorney general who served under Gov. Bill Walker, appeared on behalf of the four college students in court on Tuesday, arguing that the scholarship fund should not have been emptied.

“The Legislature intended to create an endowment that would last into perpetuity,” she said.

The fund has provided scholarships for 5,000 Alaska college students each year. Some receive help based on financial hardship, others for good grades. Alaska medical students can also get forgivable loans to study to be doctors out of state if they then practice in Alaska.

The Legislature filed an amicus brief in favor of the four college students last month, arguing that the fund was established in 2012 to provide a “durable and reliable” investment in higher education. The brief states that prior to that, there were concerns from students and legislators how dependable scholarship funding was as an annual appropriation

But, according to the state of Alaska’s attorneys, the scholarship fund, which was established in statute, is trumped by another fund in the state’s constitution.

In 1990, voters approved establishing the Constitutional Budget Reserve as a savings account to partly help smooth over budget shortfalls. It requires three-quarters of the House of Representatives and the Senate to approve spending from it.

Billions of dollars have been “borrowed” from the reserve to bridge the state’s fiscal gaps over the last decade. There is a constitutional provision that every dollar taken from the reserve must be repaid unless another three-quarter vote stops that from happening at the end of each fiscal year.

That was the vote the Legislature failed to pass in 2021 that led to the Higher Education Investment Fund being drained.

Margaret Paton-Walsh, attorney for the state of Alaska, said that the scholarship fund is no different from dozens of other state accounts, and that it was right to drain it into the reserve. She argued that the constitution’s repayment provision is a “high priority.”

“The constitution does contain directions that limit legislative power over appropriations,” Paton-Walsh said. “And this is one of those directions.”

Lindemuth noted that the fund was established with $400 million from the Alaska Housing Finance Capital Corp. No money in the scholarship fund came from the reserve, meaning it can’t be used to repay it, she argued.

When the lawsuit was filed in early January, the governor requested an expedited hearing schedule to resolve the issue quickly.

“I have supported scholarship funding every year I have been in office and will continue to do so,” Dunleavy said through a prepared statement at the time. “Alaska’s students can be assured their scholarships will continue to be funded regardless of this lawsuit.”

Judge Adolf Zeman said on Wednesday that he would issue a ruling on or before Feb. 22, but that could be appealed to the Alaska Supreme Court.

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