The Haines Borough is slated to receive $4 million in coronavirus relief funding under a proposal released by Gov. Mike Dunleavy last week. However, new federal guidance suggests this boon may not resolve the borough’s budget challenges.

As part of the CARES Act, the COVID-19 stimulus bill the federal government passed on March 27, Alaska will receive $1.25 billion. Last week, the Dunleavy administration released a plan to distribute these funds, including $300 million for small business relief, $50 million for non-profit support, $337.5 million for health care-related costs and $562.5 million for direct relief to local governments. The $4 million slated for Haines comes out of this last pool of money.

Earlier this month, the governor vetoed roughly $210 million from the state’s budget for programs ranging from school bond debt reimbursement to community assistance to the Alaska Marine Highway System. For Haines, the vetoes mean even less revenue going into a budget cycle where borough manager Debra Schnabel has already estimated a 40% decrease in sales tax revenue as a result of COVID-19.

When the governor vetoed the funds, he said he intended to use CARES Act money to backfill the vetoes. However, recent guidance from the U.S. Treasury Department suggests this plan will not be possible.

The guidelines for how the borough can spend the money are much more restrictive than anyone had previously anticipated, Sen. Jesse Kiehl said at last week’s virtual townhall with Haines and Klukwan residents. According to treasury’s guidance, the CARES Act requires that payments to states and local government be used exclusively to cover “necessary expenditures incurred due to…COVID-19” between March 1 and Dec. 30 of this year. The guidelines specifically preclude use of CARES Act funding for “revenue replacement.”

This means the state can’t use the money to backfill the vetoes and local governments will not be able to use the revenue to cover budget shortfalls, Kiehl said.

“Finding (expenses) that meet the federal guidelines becomes pretty burdensome,” Rep. Sara Hannan said at the townhall. She said many communities don’t have a good way to measure the direct impacts of COVID-19. “Instead, they have a zero economy.”

“There’s got to be a good saying out there for how you can be so rich and so damn poor at the same time,” Schnabel said. Haines will be “stuck holding this big pile of money” without the ability to funnel any of it toward its budget deficit.

Schnabel said emergency equipment like the recently purchased decontamination unit would be an obvious candidate for use of the CARES Act funding. However, she said she believes this sort of expense is already covered through FEMA.

Another potential use could be grants to businesses impacted by COVID-19. The challenge with this idea is figuring out how to distribute funds in an equitable manner, Schnabel said. How do you quantify the impacts of COVID-19 for a business that is not currently in operation? She said the Alaska Municipal League is working with the Foraker Group and municipalities across the state to develop a unified method to determine business eligibility.

Another idea could involve using the funds to cover residents’ property taxes this year, Schnabel said. However, the borough would need to determine how to do this in a way that distinguishes the measure from revenue replacement.

Kiehl said legislators are seeking guidance on whether any portion of the CARES Act funding could be used to issue stimulus checks to residents at either the state or local level.

Though the governor has proposed Haines receive $4 million from the CARES Act, the amount is not yet fixed.

Kiehl and Hannan said legislators are discussing the possibility of returning to Juneau in early May to determine how CARES Act funding will be distributed. There remains uncertainty about whether the executive branch has the authority to accept the federal funding without legislative approval, Kiehl said.

If legislators return to Juneau, there is no guarantee they would adhere to the governor’s formula for parceling out CARES Act money. At a recent meeting with the governor’s Office of Management and Budget (OMB), legislators raised questions about how the administration arrived at its funding formula for municipalities. While the governor proposed $4 million for Haines, he proposed $7 million for Skagway, which has roughly half the population.

Analysis by the Legislative Finance Division concluded the governor’s formula for CARES Act distribution is composed of two components. The first, based on the community assistance formula, is tied to population, and the second is 75% of a community’s 2019 tax revenue, excluding property taxes.

The Treasury Department guidelines will make it difficult to spend whatever money Haines ends up receiving, Schnabel said. “Can I see us spending four million on COVID-related expenses? No.” She said the borough will need to be careful to adhere to the guidelines to avoid having to return money in the future.

The Alaska Legislature is working to get more latitude from the federal government for CARES Act spending so it can better meet the needs of local governments, Hannan said. She said channeling CARES Act funding to local nonprofits could be a potential workaround as these organizations can more easily link an uptick in demand for their services to COVID-19.

Schnabel said if and when Haines receives CARES Act funding, decisions of how to spend it will fall to the assembly.