Dunleavy move to waive loan regulations deserves public disclosure

Gov. Mike Dunleavy wants legislators to act in one week on his plan to dispense $1.25 billion in federal bailout funds.

I know that speed is important, but that’s not enough time to make sure the state distributes the money in a responsible manner with safeguards to prevent waste, fraud and abuse.

Here is the package of information submitted to the Legislative Budget and Audit Committee, one of the most hastily assembled and largest spending plans in state history. About $562 million is to be distributed to municipal governments and $337 million is to support COVID-19 health costs.

The third biggest element is $300 million to increase loans for “small business relief.”

Loan programs administered by the investments section of the commerce department and those by the Alaska Housing Finance Corp. and the Alaska Industrial Development and Export Authority would be expanded with the federal cash.

The $300 million will support “struggling small businesses,” according to this document presented to legislators.

“Certain requirements of receiving loans may be waived as part of this process,” the Dunleavy administration says on a backup document. “The goal of this funding element is to put money in the hands of these businesses to avoid foreclosure while the crisis passes.”

That statement about waiving loan requirements is missing from the state summary.

What requirements will be waived in the rush to get money into the hands of businesses? Will loans be made to businesses without a strong record or solid credit? Will the ability to repay loans be a factor in awarding loans? Will no-interest loans be made?

The state hasn’t provided waiver details. Unless there is full disclosure and a system with checks and balances to guarantee accountability, this sounds like an open invitation to a boondoggle.

The information on what rules are to be waived and why should be made public and not kept confidential, though I suspect the state will claim all of that should stay secret.

AIDEA has already taken a dubious step in this direction by adopting a rule allowing the managers of that agency to waive or modify any requirements on loans, guarantee and finance programs, as long as no state law is violated.

The change allows AIDEA managers to ignore financing requirements established in state regulation to help protect the state’s investment and limit the risk of default.

AIDEA can waive fees on application processing, interest rates, costs, fees, loan or financing terms and conditions, collateral requirements, underwriting standards and other requirements.

Another part of AIDEA’s response to the crisis is to make loan guarantees of up to $1 million per business to 50 businesses or more. “The objective is to enable Alaska’s banks and financial institutions to immediately provide additional capital to Alaska businesses through their existing relationships as they continue to manage terms with those borrowers,” AIDEA said in a press release March 30.

If the Legislature approves the expansion to allow a $1 billion program, the agency could provide a loan guarantee of up to $1 million to 1,000 or more businesses.

Meanwhile, Dunleavy has reversed his repeated claims that the federal bailout money could be used to simply replace items he vetoed in the budget as long as he made a claim that the vetoes were connected to COVID-19.

In an interview with KTVA less than two weeks ago, he expressed some irritation when asked about whether the rules allowed him to replace nearly $200 million in vetoes with federal funds and gave a laundry list of federal officials who didn’t say no.

“I talked personally with the secretary of the treasury, I talked personally with Russ Vought, who’s the OMB director, personally. I spoke personally with Mark Meadows, who’s the new chief of staff, on this issue. All indications that I got from those individuals are is that they understand the states needs as much flexibility as possible to be able deal with the fallout from this virus. And so they’re going to make it work in that we are able to use the money in as flexible a manner as possible,” he told the TV station.

In a statement Wednesday, he said he isn’t sure anymore and the money will be used to mitigate the impact of the pandemic.

One of his major vetoes was for school bond debt repayment. It’s conceivable that local governments could use some of the portion of the municipal grants they are in line to get to replace that money.