Dunleavy creates crisis for rural Alaska by stopping power subsidies, but won't take responsibility

Two years ago this week I wrote about how the Dunleavy administration created a crisis with the Power Cost Equalization endowment.

Gov. Mike Dunleavy has done it again in 2021, choosing to push a new interpretation of state law that short-circuits state subsidies that hold down electric rates in rural Alaska. Most of the utilities run on diesel fuel, which is far more costly in roadless areas than in the Railbelt, but even when subsidies are paid, the rates are far from equalized.

The new Dunleavy interpretation holds that the endowment was emptied July 1 with the start of the new fiscal year because Republicans in the state House opposed the budget and were able to prevent the technical move known as the “reverse sweep.”

This relates to the operation of the Constitutional Budget Reserve, which has a rule under which funds in various account are “swept” at the end of the fiscal year into the reserve, where they can’t be spent without a three-quarter vote of the Legislature.

It is impossible to get a three-quarter majority of the Legislature to agree on whether the sun is shining, which gives the minority veto power over the majority. And since more than one-quarter of state legislators are part of the Dunleavy wrecking crew, willing to sacrifice all on the dividend altar, they have no hesitation about using the PCE as a bargaining chip.

Governors and legislators who preceded Dunleavy believed that the electric endowment never fell under this three-quarter requirement and the process for funding rural utilities worked well until Dunleavy came along.

“The Legislature’s budget fails to protect rural Alaskans from extreme power costs,” Dunleavy claims on Facebook. “We must do better this August.”

Dunleavy, as often happens, is not telling the truth. He is playing his usual game of duck, cover and find somebody to blame.

The blame for failing to protect 84,000 rural Alaskans from extreme power costs rests entirely with the big guy. The news coverage of the suspension of the Power Cost Equalization payments as of July 1 has failed to present Dunleavy’s actions in context.

He is relying on an untested and questionable legal theory promoted two years ago by Kevin Clarkson, the former attorney general, whose dubious legal declarations have produced a string of court defeats for the state.

If the Clarkson plan somehow survives in court, it would lead to chaos. The Legislative Finance Division looked at the situation two years ago and concluded that if the Clarkson/Dunleavy logic on the PCE holds, it would apply to the earnings reserve of the Permanent Fund.

That enormous complicating factor has yet to be faced by Dunleavy and Clarkson’s successor.

The Legislature appropriated $32 million to cover the rural electric subsidies, but Dunleavy chose to ignore the long-standing precedent on the Constitutional Budget Reserve sweep. According to Dunleavy, the endowment used to pay the subsidies was emptied July 1 under his new interpretation of the law.

With Dunleavy’s support, the Republicans in the House are trying to use this as political leverage to force the Legislature to overspend from the Permanent Fund and pay a larger dividend.

Dunleavy’s decision to veto the PCE without admitting it is now the subject of a lawsuit filed by the Alaska Federation of Natives and other groups.

For background, here is my recent account of Dunleavy’s long-standing opposition to the PCE endowment.

In 2019, the Legislature refused to transfer the $1 billion endowment to the general fund, but Dunleavy moved the money to the Constitutional Budget Reserve, using the slender thread of a Kevin Clarkson letter as justification.

He claimed he had to do what he did because the Republican minority in the House refused to vote for the “reverse sweep.”

Donna Arduin, his former temporary budget director, told legislators two years ago that Dunleavy wanted the endowment to remain empty.

Later that summer, the Legislature overturned the Dunleavy PCE decision and put the money back in the endowment.

By the time of the 2019 Alaska Federation of Natives convention, Dunleavy was trying to reinvent himself as the champion of the PCE endowment, never admitting that he had repeatedly tried to get rid of it.

He’s trying to pull the same trick now, claiming that depositing more than $1 billion from the endowment into the Permanent Fund would secure its future. The constitutional amendment he proposed to try to buy the vote of Sen. Lyman Hoffman would leave it up to future legislators to set the amount of the annual electric subsidy “according to state law.”

Dunleavy hasn’t delivered.

That “according to state law” phrase will give Dunleavy and other opponents of the PCE endowment the ability to say that PCE payments have to be cut because the amount “necessary to equalize the cost of power in the state” will always be secondary to setting the size of the PFD, funded from the same account.

Dunleavy’s supporters in the Legislature may go along with his plan to put the PCE in the Constitution, fully aware that future lawmakers will be able to short-fund it under the Dunleavy plan.

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