The PCE lawsuit gets it day in court, Morgan resigns and Dunleavy proposes—GASP—revenues

Well, that last part has a big ol' 6'7" caveat next to it.

Happy Friday, Alaska!

In this edition: Bronson’s pick for health director dips out, one of the most consequential lawsuits of the Dunleavy era gets its day in court, the governor suggests he might maybe consider possibly potentially supporting taxes maybe if the Legislature passes ‘em first and the weekly video.

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Anchorage Mayor Dave Bronson’s pick to run the city’s health department, David Morgan, has resigned. Morgan faced increasingly tough opposition as skeletons in his closet—ranging from largely run-of-the-mill far-right Facebook posts that suggested that covid-19 was a hoax to undermine Trump to far-more-consequential accusations that he had not only mismanaged a non-profit but harassed some employees along the way—that made his confirmation with the Anchorage Assembly next week look like an incredibly long shot. And that’s not to mention that he tapped far-right agitator Dr. Michael Savitt, a guy with apparently an even weaker understanding of pandemic metrics than we thought, to replace the two widely respected public health folks that the Bronson administration has forced out.

In his resignation letter, Morgan cites a “political witch hunt” (questioning about legitimate concerns about his behavior in recent years) as his reason for ditching out before he was likely to be voted down. That’s all pretty rich following everything that the Anchorage Assembly, former mayors and city workers have had to endure during the last year, which included Bronson’s current chief of staff suggesting that Assemblymember Forrest Dunbar be removed from the National Guard. Also, it’s been a while since I’ve put featured a tweet in this newsletter but this one takes the cake:

AFN v. the State of Alaska (Dunleavy)

The lawsuit challenging the Dunleavy administration’s sweeping reinterpretation of the Constitutional Budget Reserve’s sweep rules to include the Power Cost Equalization program had its day in court this morning. The lawsuit was brought by the Alaska Federation of Natives and a dozen other groups that included local governments, utilities and other tribal groups that challenged the latest sweep by the governor that saw the program’s endowment and thus its operating funds canceled following the failure of the reverse sweep.

As per usual, it’s always hard to try to divine what way a judge might be leaning based on oral arguments alone but it seemed like former Attorney General Jahna Lindemuth, who was arguing on behalf of AFN and the other plaintiffs, seemed to have the stronger case. Her case largely revolved around the argument that the framers intended for the Legislature to be able to set up accounts separate from the general fund and likened the Power Cost Equalization endowment fund to any other investment in a tangible object.

"It's the same if they invested it into a hydro dam for urban Alaska,” she said, calling it a “terminal appropriation.”

The metrics for whether or not something is subject to the sweep is, according to existing laws and precedent, whether or not the money is in the general fund AND available for appropriation. In the 2019 memo from former Attorney General Kevin Clarkson, he wrote that Power Cost Equalization money is like the general fund and therefore should be treated as such. While his memo featured heavily in Lindemuth’s arguments, which she said showed how hollow the state’s case was, it was rarely if ever mentioned in the state’s case.

Instead, the state’s attorney Katherine Demarest (who, side note, worked with Lindemuth on the Fairbanks Four innocence case) largely focused in on the Alaska Constitution’s prohibition on dedicated funds (which Lindemuth said didn’t apply because the fund could still be altered at any point by the Legislature) and the expectation that funds be repaid to the Constitutional Budget Reserve.

She said all the Legislature would have to do to keep money out of the sweep would be to pass a law or budget that transfers the funds into a separate account, akin to “a little sticky note that says it’s a separate fund.” She also argued that the status of the Power Cost Equalization program could simply be fixed by the Legislature achieving the three-quarter vote needed to access the Constitutional Budget Reserve or they could “It could reevaluate its policy priorities and pay for it out of ordinary funding options.” (Which would be the far-right talking point on the program, that it should compete with all other programs every year.)

Superior Court Judge Josie Garton said she’d have a ruling out “quickly,” which seems to mean sometime next week. The case is likely to be ultimately decided in the Alaska Supreme Court, but the state has said it does not plan to seek an injunction in the event the court rules that PCE should not be swept and the program should, in fact, be funded.

Why it matters: Hooooooo boy, this case matters more than just about any other case that the Dunleavy administration has brought (and for the most part lost) to the courts. With the special session soon approaching, one of the significant pieces of leverage that Dunleavy and his legislative allies hold over the rest of the Legislature is the fate of the Power Cost Equalization program. The program, which helps lower the costs of energy in communities where the large-scale infrastructure projects that much of the rest of urban Alaska has enjoyed aren’t feasible, is particularly dear to many legislators. Dunleavy and his allies hope to be able to turn that leverage into a litany of ever-more-expensive asks that range from constitutional amendments to anti-abortion language to massive overspends to pay out dividends.

If Judge Garton rules that the fund is not, in fact, subject to the sweep, then it takes away one of the biggest and most impactful pieces of leverage just as the Legislature is set to head in for the fall special session. The long-term impacts of the Legislature being able to squirrel away money into different accounts for specific purposes would also, potentially, become cleared, but with the state quickly running out of money, it’s not likely to have much significant impact in the near term.

If Garton rules that the state is right (and the Alaska Supreme Court upholds her ruling), then things also get pretty interesting. While a previous ruling says the Alaska Permanent Fund’s earnings reserve account is spared from the sweep, that account was only held up as an example. A more thorough ruling on the issue may potentially find otherwise, especially if Clarkson’s memo of “If it’s like the general fund then it is the general fund” holds up. That would be, well, interesting.


Speaking of interesting things and Gov. Mike Dunleavy, the administration was in front of the Legislature’s special committee working group on a plan for a fiscal future on Thursday with some actual, honest-to-God progress compared to the earlier this summer when they were telling legislators to, please, not look behind the curtain of his fiscal plan. The plan has been updated to remove the assumptions that the unattainable—big, durable cuts and new taxes—will somehow magically happen over the next five years and are a bit more frank about the $700 million to $800 million deficits that his proposal to pay out a dividend with 50% of the spendable earnings of the Alaska Permanent Fund. The whole plan still relies on a lot of rosy forecasts, but it now notably includes revenue options.

Of course, there’s the whole caveat that he’d support the following IF they’re supported by the Legislature (an ask so monumental, it’d be like saying I’d support giving my dogs whatever dinner they want as long as they pay for it themselves), but here’s the list:

  • Reduce the per-barrel credit on oil from $8 to $5 (which still falls short of what many folks have been calling for and would not likely make all that much difference if prices fall below $60 a barrel)

  • Require oil and gas companies that are set up as pass-through entities (S-Corps) to pay corporate income taxes (this would primarily affect Hilcorp)

  • Implement a broad-based income tax (which is what Sen. Mike Shower has proposed right down to it being modeled on the Wyoming or South Dakota, which is essentially a small sales tax with some to nearly no exemptions)

  • Legalized gambling! (Still at it)

  • Update the corporate income tax so it includes digital businesses (which seemed to mostly be about taxing Netflix)

  • Monetize Alaska’s carbon offsets (basically, if cap-and-trade is gonna become a widespread thing then maybe Alaska could perhaps sell some of its land as carbon sinks)

  • Increase the motor fuel tax (which is not new)

  • Use federal funds for revenue replacement (which is not new)

  • Overspend the earnings reserve account (which is like calling overdrawing your savings account as a new job)

  • Other

The presentation got cut off early so we didn’t get all the way through the list, but we did hear quite a bit of enthusiasm around the whole carbon offset idea and legalized gambling from Revenue Commissioner Lucinda Mahoney so take that for what it’s worth.

Why it matters: Sure, the governor is finally kinda, sorta putting some support out there new revenue measures but with some very significant caveats involved. Specifically, he’s really only supporting what the Legislature can get passed, which is a significant task on its own and that’s not to mention the potential for a referendum or something else to monkey up the works. The more and more the fiscal working group progresses, the more and more it seems to me that there’s a need to tie the solution together into an all-or-nothing package akin to what the Senate did when it tied its larger PFD (contained in the operating budget it passed before all the shenanigans around the conference committee budget) directly to an account that would have to be filled with a corresponding vote on the overdraw. A piecemeal approach as the governor still seems to be pushing opens far too many doors for the popular pieces to stay in place (big PFDs) while leaving the unpopular decisions (paying for the gap created by those big PFDs) to another time.

Imposter syndrome

Thanks to everyone for the very kind messages from last week. It’s been so overwhelming that I haven’t really found the words to reply directly to everyone, but I just want to say thank you to everyone. It’s really meant a lot and it’s been helping me get through the ups and downs of this week.

Anyways, I never really planned to bring the nerdiest of my nerdy YouTube-ing—mini painting—into this space but then comes this video from one of my favorite mini painters that talks talks about imposter syndrome and creative endeavors in a way that really just hit so incredibly close to home. Ninjon brings up a lot of really good points that explore the feelings a lot of us have when comparing our work and insecurities to the work of others. It reminds me of the words of my Grandma Georgina, who told me a few years before her passing, “Don’t compare your insides to everyone else’s outsides.” Anyways, enjoy the peek into the kind of nerdy stuff I get up to when I need something to keep my hands busy while listening to the latest interminable legislative hearing.

Have a nice weekend, y’all! I’m going fishing.