UPDATE: Eric Forrer, a Juneau resident, filed a lawsuit against the state Wednesday, alleging that the committee action in approving the Dunleavy plan to distribute more than $1 billion of federal money is illegal because it was not appropriated by the full Legislature. An attorney for the Legislature had said a full vote was needed to comply with the law, but Senate leaders rejected that claim. Gov. Mike Dunleavy also claimed that his plan is legal, but there is little doubt he is wrong.

Legislators plan to return to Juneau next week for a full vote on the plan.

Gov. Mike Dunleavy’s handling of the plan to give $290 million in federal money to Alaska's smallest businesses needs to be transparent, especially because the pace and volume is unbelievable.

“It is estimated that a processor will be able to verify applications and distribute funding at a rate of $150,000,000 per month,” the budget office told legislators.

That is a lot of verification.

So far, the state has done nothing to inspire confidence about dispersing the bailout money.

Here’s some background.

On April 21, Dunleavy proposed that the state pump $300 million in federal bailout funds into existing loan funds run by the Alaska Industrial Development and Export Authority and the commerce department. The Dunleavy plan to was waive certain unidentified loan requirements. The state said the agencies would “temporarily bolster their existing loan programs to provide support to struggling small businesses.”

On April 22, the Trump administration said the money could not be used for loans, but had to be used for grants. The Dunleavy administration told legislators about this change of plans April 24, with details to be worked out. I wrote this piece about how the $300 million loan program suddenly became a $300 million grant program.

The federal decision announced on April 22 also killed the claim by Dunleavy that he could spend the money on almost anything, as long as he said it was connected to COVID-19. Dunleavy was wrong in early April when he claimed that nearly $200 million of his vetoes could be replaced with federal bailout money.

Dunleavy told KTVA he did not ask the White House officials if he could veto funds for school bond repayment and use federal money as a substitute, but he thinks that is irrelevant. “They have no idea what our veto process is, they could care less about that,” he said.

It turned out to be relevant.

Meanwhile, despite what the Dunleavy administration told legislators on April 24, it didn’t transform the small business relief loan program into a $300 million grant project for small businesses.

On May 1, commerce commissioner Julie Anderson told legislators the new plan was to consider "loan forgiveness." The state was trying to determine if that was legal.

Dunleavy made numerous complaints about the Legislature being too slow to approve his plan to distribute the $1.25 billion from the federal government.

“Alaskans need help NOW,” Dunleavy or his publicity office said in a Tweet on May 7. “Not tomorrow or next week. NOW. What will history say? Did #aklegfail the people in their time of need.”

What history will say is that the Legislative Budget and Audit committee approved the use of the funds Monday and it is illegal.

There are major items in the package, including what is now a $290 million small business grant plan, that require a full vote of the Legislature, not just approval by the budget and audit committee.

The illegal nature of the Dunleavy proposal was one reason for this delay. Another was that there are sharp divisions in the Legislature and it’s always hard to get a majority vote on contentious matters.

On Monday, the Legislative Budget and Audit Committee approved the transfer of the money. Time will tell if there is a court challenge. Legislators say that if there is, they will go to Juneau and legalize the action after the fact, which doesn’t seem to be the scheme envisioned in civics textbooks.

Another thing history will say is that several hours before the meeting Monday, the Dunleavy administration finally came up with a $290 million grant program for small businesses instead of a loan program. The delay worked to the advantage of small businesses.

I don't know of any situation in the past when the state made a $290 million decision to hand out federal money with such little advance review. It's not clear when the Dunleavy administration made the change. It probably did so to win votes on the LBA, however.

One sign this was done in haste is that the documents submitted to the Legislature had not been fully edited to remove the references to loans and replace them with references to grants.

The grants of from $5,000 to $100,000 are to be given first-come, first-served to businesses with less than 50 employees that have not gotten other financial aid through the federal bailout. The businesses have to demonstrate that they’ve been harmed by the pandemic, which is not hard to do.

Up to 20 percent of the money, $58 million, will be reserved for businesses in towns with 5,000 or fewer people.

The grants are to be given out by a contractor, probably a bank or credit union, to be hired by AIDEA. The plan is to give out the money at a rapid pace. The contractor might collect about $5 million for the work, according to state documents.

The first transfer will be $37.5 million. It appears that AIDEA will have to put out a request for proposals to get a processor under contract. It’s not clear when businesses will be allowed to apply.

The state says 5,000 to 7,000 small businesses may be eligible and are likely to get from $30,000 to $50,000.

What is missing from the state plan is transparency. The public has a right to know where the money is going. Public disclosure is an essential element in preventing fraud, especially in a situation like this where there are few checks and balances.

The hundreds of millions to be given to local governments will be subject to far more public review because local elected officials will be responsible and there are processes in place.

In a recent legislative hearing, Anderson was asked about public disclosure and said, “that is not something we are considering now.” She should consider it now.

On Tuesday, Dunleavy said the Legislature "finally" approved his plan for distributing the federal bailout money. He did not mention that he changed a $290 million element of it hours before the meeting. Had the Legislature acted a week or two ago, it would have been for a cumbersome and ill-defined loan program with the possibility of loan forgiveness.

The grants for small businesses and the allocation of hundreds of millions in other funds for local governments could be distributed quickly. But because the governor and Legislature have not followed the law on appropriations, if someone files a court challenge, there will be more delays in distributing the federal money. Here is the legal opinion from the legislative attorney on exactly how the plan violates the law.