Alaska legislators look to school districts, municipalities for help paying state’s retirement obligation

03/24/2014

TRANSLATION: When your taxes go up, you'll blame the school district. Instead of the state legislators.

JUNEAU — With the state’s retirement system underfunded by billions of dollars, lawmakers are considering plans that could leave local governments and school districts with a larger share of the bill.

Gov. Sean Parnell opened this year’s session with a plan to tackle the $12 billion of unfunded pending retirement plan costs by depositing a few billion into a trust fund to keep future payments under control, but lawmakers are considering another direction.

That plan, which still is in the works, could include increasing local government and school district contributions to the retirement system and require them to continue to contribute long after they were first told was necessary.

It’s a prospect that has local leaders concerned. Fairbanks Borough Mayor Luke Hopkins said the unfunded liability in the Public Employee Retirement System is a result of the state’s mismanagement of the pension program and it shouldn’t be running to municipalities to foot the bill.

“(The state) already has shifted the burdens to us. We’re saying they should be removed,” he said. “Municipalities didn’t create this error; it was tagged to them because the state didn’t manage their system properly.”

Municipalities and school districts currently help pay off a portion of the $12 billion unfunded liability every year, with a bill from the state for 22 percent of each employee’s salary.

Those local payments were slated to end when the bill is paid off, but Parnell’s plan likely would extend that date by a few years.

A lawmaker who’s working on the Legislature’s proposal says municipal contribution needs to be even longer.

“One of the things we are discussing is the contribution from the municipalities has to go out further what the governor had. The governor has it going out to 2030, we’re going to have it going out an extra five years or indefinitely,” said Sen Pete Kelly, R-Fairbanks, “because you really can’t get that liability under control if they drop out.”

Kelly, who oversees the state operating budget in the Senate, said to get the state’s retirement costs under control, the state can’t let local governments off the hook. He also said Parnell’s plan of locking money up into a trust is too inflexible, keeping money out of the hands of lawmakers if they need it for an emergency.

He also said an increase in the amount governments and school districts will be billed is likely to go up.

“It’s all math, and 22 to 24 is coming up as a solution now,” he said.

It’s an unpopular move among municipalities. Fairbanks-area government officials called in to the Senate Finance Committee on Thursday to express concern that the changes will dramatically impact local governments, requiring them to increase taxes or reduce services to cover the estimated millions more the 2 percent change would cause.

“If you were to increase the PERS rate from 22 percent to 24 percent, the only ones who are paying income taxes in Alaska are the individuals through the municipalities, either through a property tax or a sales tax,” said Fairbanks North Star Borough Assembly member Diane Hutchison. “An increase in what the state mandates would trickle down.”

With less than 30 days left in the session, Kelly said to expect the plan out soon.

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