State Supreme Court affirms Dunleavy decision that drained fund for Alaska college scholarships

JUNEAU — The Alaska Supreme Court affirmed Tuesday a lower court decision against a handful of Alaska college students who sued the administration of Gov. Mike Dunleavy, challenging a decision that drained Alaska’s $410 million Higher Education Investment Fund.

The decision means the Alaska Performance Scholarship program and WWAMI, the state’s equivalent of medical school, do not have a dedicated funding source and must compete with other programs in the state’s annual budget process, but a separate effort by the Legislature may reinstate a dedicated account.

“Although the plaintiffs tried to make this case about supposed policy calls made by the executive branch, the Court recognized that the State was just following the Alaska Constitution,” Deputy Attorney General Cori Mills said in a statement released after the court’s ruling.

“No one disputes that the performance scholarships are an important program, which is why Governor Dunleavy included appropriations to pay for the scholarships in his budget. But that does not mean that the Higher Education Investment Fund falls outside of the reach of the constitutionally required sweep into the CBR (constitutional budget reserve),” Mills said.

The scholarship programs remain funded through at least June 30, and the budget making its way through the Legislature has money to fund the programs in the next fiscal year.

The Legislature is separately considering a bill that would remove the fund from the state treasury so that it can’t be emptied by the end-of-session legislative sweep. That measure, House Bill 322, passed the state House on Monday, and is heading to the Senate for consideration.

“We are not giving up,” Pat Pitney, president of the University of Alaska System, said in a statement Tuesday. “We have been simultaneously working to fund HEIF and the programs it supports through legislative action.”

The fund “is too important,” Pitney said. “Our state’s future is inextricably linked to the success of our people and their access to high-quality workforce training and higher education.”

Pitney said the university will dedicate its efforts to “solving this issue by supporting HB322.”

That bill would create separate accounts for higher education scholarships and for the Alaska Marine Highway System.

“Ongoing crucial state services such as the Alaska Marine Highway System should not suffer the destabilizing effects that may result from the sweep of the funds,” said Rep. Dan Ortiz, I-Ketchikan. The bill would create “needed certainty” both for the ferry system and for the higher education investment fund, he said.

The bill originally applied only to the Alaska Marine Highway System fund and was amended to cover the education fund.

“It’s about our workforce. It’s about our future engineers, our future business accountants, our teachers. Many important jobs that need to be filled,” Rep. Andi Story, D-Juneau, said on the House floor, before the House voted 25-15 to pass the bill.

Lawmakers who opposed the measure said that creating separate accounts defied the state’s constitution.

In the Superior Court decision that was affirmed by the Supreme Court, Anchorage Superior Court Judge Adolf Zeman said that Dunleavy’s administration correctly classified the higher-education fund as part of the state’s general fund in 2019. That made it subject to a clause in the Alaska Constitution that requires leftover general fund money to be automatically swept into the Constitutional Budget Reserve, a special savings account.

The Alaska Legislature regularly votes to reverse that sweep, but it failed to do so in 2021 because of opposition by Republican legislators in the state House. That failure, combined with the administration’s classification, drained the fund.