AIDEA won't seek competitive bids for firm to hand out $290 million in grants to Alaska’s smallest businesses
The Alaska Industrial Development and Export Authority is moving ahead with plans to hand out $290 million in grants to thousands of the smallest businesses in Alaska, but it will not seek competitive bids to hire a financial institution to run the program.
There is a clear legal question here about state procurement rules because AIDEA wants to allow Credit Union 1 to give the money out, even though Credit Union 1 signed a contract to administer a loan program, not a grant program. The two are entirely different.
Credit Union 1 responded to a request for proposals under which AIDEA intended to “establish a direct lending program (the “Program”) in partnership with one or more financial institutions with full‐scale loan servicing operations in Alaska (the “Program Operator”).”
Full-scale loan servicing is not needed to give out grants.
Credit Union 1 had been required to make sure the loans were good ones. For that it would collect a fee of 2.62 percent under the procurement deal accepted in early April, a total of more than $7 million.
“Program Operator reserves the right to decline a borrower if they demonstrate an inability to repay the debt, or display characteristics that would lead us to believe the debt would not be repaid,” AIDEA said in its term sheet.
But after the deal with Credit Union 1 was approved, the loan program was nixed because the federal rules had changed for dealing with the bailout money. Rather than scrap the contract, the Dunleavy administration redefined it, according to documents submitted to the AIDEA board.
AIDEA did not solicit requests for proposals from financial firms willing to give out grants — a task that is less difficult and less risky than making loans that have to be repaid — but said it would keep the same deal with Credit Union 1, which would be worth a total of more than $7 million in fees.
Some state officials have questioned the legality of this move, but the agency is likely to go ahead at a board meeting Wednesday. The issue is whether it is legal to take a contract signed for one purpose and turn it into something else.
The commerce department says, in a burst of double talk, that Credit Union 1 “will be using the loan process to facilitate the origination, documentation, and funding” of grants. Nonprofit groups are eligible.
The grants, ranging from $5,000 to $100,000 are to be given out first-come, first-served to businesses that have yet to receive federal bailout assistance. The businesses have to have no more than 49 employees.
The new grant program remains snagged in the bureaucracy, part of a larger dispute about legally accounting for nearly $1 billion supplied by the federal government.
A legislative committee approved an illegal distribution plan last week, which was immediately challenged in court. The full Legislature returned to Juneau Monday to legally appropriate the federal bailout money.
AIDEA and the state commerce department say they would like to have Credit Union 1 start taking applications on May 26.
The Legislature should take steps now to make sure that this AIDEA program is transparent, meaning that applicants and recipients of the grant money are public information and not AIDEA secrets.