Watchdog: Follow the Money

Agency hands out federal cash in Alaska but does nothing to make sure it's spent properly

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View Denali Commission funds towns in Alaska in a larger map Watchdog,Alaska,Inspectors General,Waste and Fraud,Luke Rosiak,Follow the Money,Energy and Environment

An obscure federal commission has funneled $47 million to 21 towns in Alaska but is doing little to oversee how the money, which came with strings attached intended to wean the recipients off of federal dependency, was spent.

In fact, instead of monitoring recipients for 40 years, the commission shreds contract paperwork outright after three years.

The Denali Commission pays for fuel tanks in Alaskan towns in return for their promising to save a certain amount of money annually towards buying new ones themselves when the federally-funded one reaches its end of life.

But the commission appears to have little interest in how the money is spent or in moving the villages towards self-sufficiency, according to a Dec. 2 letter from Mike Marsh, the commission's inspector general.

A copy of the letter, which was addressed to Missouri Democrat Sen. Claire McCaskill, was obtained by the Washington Examiner.

The contracts at issue are with 21 towns that received a combined $47 million despite being home to fewer than 5,300 people. False Pass, a village of 39 people, for example, received $877,000.

Of the 21, “only six assert that they have the savings accounts required by the contract. And only four assert the level of savings required,” Marsh said in the letter.

Yet Denali required the towns to sign a contract that prescribed in detail required actions like the regular savings as conditions for getting the federal aid.

The commission also promised in the contracts that it would conduct rigorous oversight for 40 years, and would repossess facilities bought with the federal funds if the towns failed to do as promised.

“Denali is at most a fourth of the way through the 40-year term of the contracts. However, several of the 21 contracts were already unavailable,” Marsh said. “In practice, the contracts have been forgotten by Denali and most of the cities.”

That means that not only have the towns failed to fulfill their contract requirements by taking care of themselves, they now could also sue the commission for damages because it has failed to do the promised oversight, according to Marsh.

“Traditional grants pose little litigation risk for the government. But federal contracts are another matter,” Marsh told McCaskill. “Once that commitment was made, Denali became liable for neglect or indifference in performing it.”

Marsh estimated the potential liability for the government at $40 million.

The mayor of Gustavus, one of the cities that received funds, wrote: "The American public is entitled to assurance that its investment in Gustavus is being responsibly operated and maintained."

A provision in the contracts requires that disputes about their terms to be litigated in state court, which Marsh said is illegal.

Such disputes would have to be settled in federal court, but courts of all levels in Alaska have a tendency to level judgments against public entities for breaking promises, he said. The commission could even be liable for destroying evidence by shredding the contracts.

Marsh said he warned the commission a year ago about the problems, but nothing appears to have been done in response.

Paying for fuel tanks that get small towns in Alaska through the winter was the founding purpose of the Denali Commission, a 15-person independent federal agency, but it has since morphed into a more general money-distributing machine.

A spokesman for McCaskill's office did not respond to requests for comment.

Denali Commission staff declined to comment on the issue, instead pointing to a report it created responding to the IG's original warning about the issue.

That report said "a review of Commission documents turned up the annual reports of only seven grantees for the 77 projects surveyed. And only five of those reports included evidence of [the required savings] account."

It said part of the confusion stemmed from yet another organization that was involved in administering the contracts; Denali thought it was in charge of enforcement, while it thought Denali was.

It said it spent a significant sum on a study of the issue that also included "funding to help educate the grantees about funding their accounts... appropriately."

The study found that "none [of the grantees] was operating in perfect compliance with the business plan. It is worrisome that the Commission and [the other organization] were made aware of the issues a number of grantees were having in adhering to the business plans, and in fact spent almost a quarter of a million dollars on identifying those issues, but do not appear to have attempted to remedy the situation."

One of the Commission's conclusions in the report was that perhaps grant recipients should no longer be required to save for the future.

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