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Superior Court judge hears arguments in Alaskan’s lawsuit over virus aid to small businesses

JUNEAU — A state court judge should block disbursement of federal coronavirus relief aid to small businesses under a reinterpretation of program rules by Alaska Gov. Mike Dunleavy’s administration, an attorney argued Thursday, saying a failure to do so could invite “mischief.”

The request is part of a lawsuit brought by Juneau resident Eric Forrer. Attorney Joe Geldhof, who represents Forrer, asked Superior Court Judge Philip Pallenberg to require the administration to adhere to rules it proposed and lawmakers ratified. Since the program outline was ratified, the state has sought to expand the rules as a way to provide additional aid to businesses.

Geldhof argued if Pallenberg did not require the administration to follow the standards ratified by the Legislature, “you will be inviting not just mischief but perhaps corruption.” Geldhof said he is trying to avoid a “standard-free” allocation of funds.

Pallenberg did not immediately rule.

The state designated $290 million of the more than $1 billion in federal coronavirus relief aid toward a small business program. The program, proposed by the Dunleavy administration and ratified by lawmakers, said businesses that secured federal funds directly available to them under a federal relief law would not qualify.

Forrer, who argues the ratification process itself was problematic, sought a court order that either would halt distributing funds set aside for businesses until lawmakers approve a “valid expenditure” or block spending that does not adhere to the “express terms” lawmakers ratified. Arguments, held by teleconference Thursday, focused on the latter.

Attorneys for the state, in court documents, said Forrer relies on a “literal application of language” in a program description that they say runs counter to the program’s purposes and ignores the legislative history and context of the coronavirus pandemic. They also say Forrer lacks standing in the case.

Assistant Attorney General Margaret Paton Walsh said the program description also references estimates that businesses could need an average of $30,000 to $50,000 and said it was expected that the least an eligible business could need is $5,000.

When the program plan was drafted, the first round of federal loan funds had been depleted and the second had not been made available, Glenn Hoskinson, a special assistant to Alaska’s commerce commissioner, has said. Hoskinson said the state Department of Commerce, Community and Economic Development also was not aware then that businesses were getting partial amounts of funds requested from the federal programs.

The department last month announced eligibility changes intended to help more businesses. The changes include allowing businesses that received $5,000 or less in certain federal relief funds to become eligible for the state’s grant program, provided they meet other requirements.

The state has not yet implemented the changes, Hoskinson said, citing the litigation.

“It is the State’s position that the changes are permissible and lawful adjustments to the administration of the small business relief program, and we hope to be able to move forward very soon,” she said by email.

The program has gotten off to a slower start than expected. In a report to the Legislature, the department cited incomplete applications and a high volume of unnecessary documentation submitted as part of applications as a primary reason for the low number of approvals.