Dunleavy special session delay puts $200 million for small businesses at risk
Gov. Mike Dunleavy’s administration had hoped to distribute $150 million in emergency grants to small businesses in June, drawing from a $290 million cache of federal money from the COVID-19 bailout bill.
The goal was to follow up the $150 million in June with $140 million more in grants in July. This schedule struck me as an impossible dream when the state announced it in the spring.
As it happened, the emergency grant program has been more of a nightmare than a dream.
Instead of giving out $150 million in June, Credit Union 1, the state contractor hired to process the applications, has so far distributed $7.5 million in grants as of July 6.
Businesses are closing and the wheels of the bureaucracy are barely moving, on pace to take two years to reach the one-month target.
But the federal law requires that the money apply to costs incurred before the end of 2020. If not spent, it has to be returned to the U.S. Treasury.
There is a real risk that the deadline on spending the COVID-19 funds will expire before many Alaska businesses, fighting to survive another day, see a dime from this grant program, which is to help businesses with fewer than 50 employees.
At this rate, Alaska will be forced into doing the unthinkable—giving back $200 million or more to the federal government.
Something needs to change. Now.
Dunleavy should have already called a special session in Anchorage to get this fixed. The testimony last week about the range of problems with this operation was devastating.
That he hasn’t called a special session is the latest in a series of mistakes with this program.
The House Labor and Commerce Committee has another hearing set for Thursday from 11 a.m. to 1 p.m. to take public testimony.
The legislative session can be in Anchorage, it doesn’t have to take long and it doesn’t have to be complicated. It should focus entirely on correcting this program so that the $290 million can help small Alaska businesses as soon as possible.
I’ve heard that Attorney General Kevin Clarkson may be developing a scheme that the program can be fixed without legislative action, but the last thing we need is another invitation to a court suit. Many businesses can’t afford additional delay and the threat of being forced to close for good is all too real.
Most of the small businesses seeking these grants, which are to range from $5,000 to $100,000, are waiting to hear back from Credit Union 1. But even if all of the 1,300 pending applications on hand are approved, the state will provide a total of about $70 million in grants, which is a long way from $290 million.
The main problem is that the state created this program with rules that automatically disqualify thousands of struggling small Alaska businesses simply because they have received small amounts from other programs included in the federal assistance bill.
“Unless we plan on returning over $200 million to the federal government, we need to make these suggested changes now,” Tim Dillon, executive director of the Kenai Peninsula Economic Development District, told House legislators last week. He outlined several simple changes that legislators could make in a short session.
“I need to remind everybody that no one is getting rich with this money. No one is being made whole with this money,” Dillon said.
Dillon said the problem is “no one’s fault. It’s just that the rules don’t match up with the needs.”
I agree the rules don’t match the needs. The fault lies with the inflexible rules created by the Dunleavy administration and the refusal to admit the mistakes at several points in the process.
Dunleavy made numerous complaints about the Legislature being too slow to approve his plan to distribute the $1.25 billion from the federal government, including the hundreds of millions for small businesses or to spend more from the Permanent Fund.
“Alaskans need help NOW,” Dunleavy said in a Tweet on May 7. “Not tomorrow or next week. NOW. What will history say? Did #akleg fail the people in their time of need?”
The Legislature approved the Dunleavy plan to distribute more than $1.5 billion in federal funds in May, including a rule that said all applicants for the $290 million business grants had to have a business license. “But commercial fishermen don’t have a business license. They have a permit,” Dillon told legislators last week.
Fishermen are in business and they don’t qualify for the program on that basis alone. That’s a mistake.
The rules from the administration also prohibited giving grants to businesses that received any help from any part of the federal bailout fund.
This was and is the biggest mistake in the state grant program.
A total of 9,516 Alaska businesses had received Payroll Protection Program loans/grants of less than $150,000 by the end of June.
Thousands of those businesses received relatively small amounts. More than 4,000 of them received $20,000 or less. Nearly 1,000 businesses received $5,000 or less.
The Dunleavy administration has said that despite a rule banning grants to those who received any federal assistance, it wants to allow grants to businesses that received up to $5,000 from one of the other programs. This is legally suspect.
There is an ongoing court case that threatens to derail the plan, which is the last thing small businesses need right now.
Given the scale of the economic damage and the resources available, the limit should be raised—perhaps to $10,000 or $20,000.
Clearing the legal questions will take action by the Legislature at a quick special session that should have already been called by Dunleavy. Struggling small businesses can’t wait.
Dunleavy should follow his own advice in that Tweet from May 7: “Alaskans need help NOW. Not tomorrow or next week. NOW. What will history say?”
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