At the Alaska Legislature this week, there’s a lot of talk about something called “the sweep.”
This is a term used to describe an accounting quirk with the state’s money that’s happened every year for the last 20 years. And it goes something like this: On the night of June 30 — that’s the end of the state’s fiscal year — a lot of money moves around at the last minute.
“That sweep occurs at one second before midnight, and the reverse sweep occurs one second after midnight, or as close as possible to that,” said Division of Legislative Finance Director David Teal.
That sweep drains all of the money out of several state accounts — including the general fund — and puts it all in a savings account called the Constitutional Budget Reserve. This is a constitutional mandate, and it can’t be avoided.
Typically, on July 1, the money goes back into those state accounts, and state agencies continue to use it to pay the bills.
“So theoretically, if the reverse sweep occurs, nobody knows the difference. All the money is exactly where it was when you went to bed,” Teal said.
But while the sweep is constitutionally mandated, that reverse sweep is not. It’s up to lawmakers to put that money back. In order for this process to go smoothly, a supermajority of the Legislature — three-quarters of them — have to vote to put that money back into the accounts it came from.
But this year, some key things have changed.
For one, Gov. Mike Dunleavy’s administration wants to get rid of a lot of those state accounts. The accounts are earmarked for everything from the compensation for crime victims, to debt retirement, to the Alaska Marine Highway System.
Dunleavy didn’t include a reverse sweep in his budget. So what happens if the Legislature fails to get that supermajority? All of that money stays in the Constitutional Budget Reserve — out of reach of the state departments who would normally use it.
One other potential change is what the sweep includes. Right now, there are exemptions for money in state corporations, like the Alaska Industrial Development and Export Authority and the Alaska Gasline Development Corporation. But there are also two big accounts that haven’t been included in the sweep in the past. One is an endowment for higher education that pays for college student grants and scholarships, and the other is the Power Cost Equalization fund, or PCE. That one is used to offset the cost of energy in rural Alaska.
“The common belief here in the Legislature, and certainly amongst those who are closest to the issue and rural legislators, is that the governor intends to take all of the money out of that account and to sweep it into the budget reserve and essentially do away with the PCE endowment,” said House Majority Leader Bryce Edgmon. He’s an independent rural legislator from Dillingham.
Edgmon said he remembers a time when rural legislators fought every year to get funds earmarked to offset high power costs in their districts. The PCE endowment — which has swelled to about $1 billion — largely took that political fight off the table. But now, with the prospect of it being included in the sweep this year, that means the funds could be spent on other things.
So far, there has been just one year where legislators didn’t muster the votes to push the reverse sweep through. Teal said generally the funds that are being swept can replenish themselves.
To put it in household budget terms, it’s like someone coming in and taking all of the cash in your checking account on June 30.
“Meanwhile, you’re scrambling to cover bills and you know you may have to borrow from your sister or do whatever it takes to pay your bills. But it’s true that, in a month or two, you’re probably going to have the money and be able to cover things,” he said.
But in the case of Power Cost Equalization, it doesn’t work like that. Teal said it only earns money on the interest from its balance. That means that if the money is swept out and the Legislature can’t muster the votes to put it back, it could disappear completely.