Unreasonable federal limits on spending bailout money create nightmare

Gov. Mike Dunleavy’s “six-point plan” to support the economy and respond to the ravages of the pandemic includes an item that the Trump administration has declared to be improper.

The governor wants to distribute more than $562 million in federal bailout funds to local governments across Alaska. Point No. 4 on the six-point plan is the “Emergency Community Lost Revenue Replacement Program.”

The purpose of the program is to “replace lost revenue due to negative economic impacts associated with COVID-19,” according to the announcement that remains on the state website.

The thinking was that local governments that see a drop in sales tax revenues or property taxes could use the federal money to make up the difference.

The problem with that idea is that the U.S. Treasury Department has taken an unreasonable position, declaring that the federal bailout money cannot be used by local and state governments to replace lost taxes.

“Although a broad range of uses is allowed, revenue replacement is not a permissible use of fund payments,” the U.S. Treasury Department said in a document last Wednesday.

“The requirement that expenditures be incurred ‘due to’ the public health emergency means that expenditures must be used for actions taken to respond to the public health emergency,” the Trump administration said.

Either the Trump administration needs to take a more sensible position or the Dunleavy administration needs to correct its website and to provide clear information to Alaska local governments about what is allowed under the Trump rules.

One sign of the confusion appeared Sunday in the Fairbanks Daily News-Miner. The newspaper reported that the city of North Pole planned to use federal money to replace lost revenue, with Rep. Mike Prax saying, “his understanding is the goal is to replace lost revenue, like in North Pole, where the city will be short on sales tax due to the expected sharp drop in tourism this year.”

North Pole can’t do that.

I suppose that some local governments may be tempted to use the money in any way they see fit, thinking that the federal government won’t come after them, but that wouldn’t be a smart response. It could lead to jail time.

Last Wednesday, Dunleavy said the revised guidance from the Treasury Department contradicted the earlier comments he said were made to him by Trump administration officials about how he could use the money on almost anything.

He said last week that “there is a lack of clarity” on whether the federal bailout money can be used to “backfill lost revenue as a result of the pandemic.”

There is no lack of clarity. The Trump administration says no.

This is a national issue, one that Trump and Congress need to correct.

The Trump administration gave false signals to governors, according to various news reports, about how much flexibility it would allow in the use of the money.

State and local governments across the country have had major declines in revenue because of the pandemic and they should be able to spend the money to replace lost taxes.

But there is a real possibility that the eligible uses of the bailout funds are so narrow that state and local governments will either have to engage in creative accounting or return the money at the end of this year.

“State and local officials from both parties have told lawmakers that they find the Treasury restrictions unworkable,” the New York Times said Monday.

A letter from all Democrats in the U.S. Senate said that while the words “revenue replacement” are not in the applicable section of the federal bailout law, it is a “logical conclusion that lost or delayed revenues are a direct cost created by the coronavirus” and should be covered by the federal money.

The Democratic senators called on Treasury Secretary Steven Mnuchin to fix the problem and allow flexibility. That’s what he should do right away.

We need to hear from Alaska Sens. Lisa Murkowski and Dan Sullivan about whether they will use their influence to reverse the unreasonable position taken by the Trump administration, which will create a nightmare for Alaska local governments.