JUNEAU — One of the big issues facing lawmakers this session will be how much to spend on immediate wants and needs and how much to save for the future.
This isn’t a new debate. In recent years, majorities in the House and Senate, as well as the governor, have each taken credit for socking away money while still passing robust spending plans. For some lawmakers, however, attempts at fiscal prudence haven’t gone far enough.
At least two bills pending before the Legislature — the 2012 session opens Tuesday — would put billions of dollars into the Alaska Permanent Fund, which is far more difficult for lawmakers to get access to than other state savings accounts. Another bill proposes a constitutional amendment that would cap spending and compel future savings.
“There’s plenty of money to go around if we manage it wisely,” said Sen. Johnny Ellis, D-Anchorage.
Ellis is the lead sponsor of SB142, which would move $2 billion from the Constitutional Budget Reserve Fund into the Permanent Fund. The measure would put another $2 billion from the reserve fund into a special fund intended to help address the state’s pension debt. Ellis is separately proposing the creation of a pension reserve fund.
Ellis said legislation like this, which has at least one Republican co-sponsor, helps focus the conversation on saving. It’s not clear how much traction the measures will get.
House Speaker Mike Chenault, R-Nikiski, said the Legislature has been doing the right thing the last several years by putting money into savings and being “somewhat frugal.” But he said he doesn’t think lawmakers should be mandated to put a certain amount aside, noting uncertainties about future revenues.
He said if it makes sense to put more money toward addressing the unfunded pension liability then that’s what should be done. But he said lawmakers also must be careful about tying up liquid assets, as that could leave the state in a precarious financial position in the future.
A spokeswoman for Gov. Sean Parnell, Sharon Leighow, said the administration had no specific comment on the proposed legislation, pending further review. But she said Parnell has already committed to saving surplus revenue and proposed additional savings to draw from in leaner years.
“His fiscal responsibility is also demonstrated by record vetoes he exercised across the last two years,” she said.
Alaska is in an enviable position among states. It didn’t feel the effects of the U.S. recession nearly as much as most other states and high oil prices have helped to keep its treasury flush. As of July 1, the start of this fiscal year, Alaska had $15.9 billion in undesignated savings, a category that includes the constitutional and statutory budget reserve funds and Permanent Fund earnings reserve account. Total market value of the Permanent Fund currently stands at about $39 billion.
But challenges lie ahead. The state’s economy relies heavily on oil production and federal funding. Oil production has been declining and federal funding is expected to diminish, as Congress faces a massive deficit. Then there’s the pension issue. The state is facing an estimated $11 billion unfunded pension liability.
Parnell has proposed cutting oil production taxes as a way to boost exploration and production, but his plan faces a tough road in the Senate.
Ellis’ bill would be a one-time deal, as would a proposal by Rep. Mike Doogan, D-Anchorage, which would take $10 billion from the constitutional budget reserve and put that money into the Permanent Fund. Adding to the principal of the Permanent Fund would likely boost over time the size of the dividend that Alaskans receive. The last time the Legislature made a transfer from outside the Permanent Fund was 1985 — and it was $300 million.
The state constitution would have to be amended for lawmakers to access the Permanent Fund principal.
The proposed constitutional amendment, by Sen. Bill Wielechowski, D-Anchorage, would be perpetual, capping at $6 billion the amount of unrestricted oil revenue that could be spent in a year and requiring that at least two-thirds of the money above the cap be put into the constitutional budget reserve. (The cap would be adjusted for inflation and population growth.)
If the measure passes the Legislature, Alaskans will get a chance to vote on it.
“I think this will be a big point this year in the Legislature because we’ve got a lot of money and want to make sure we don’t blow it all,” Wielechowski said.
Ellis said that over the last five years, about $11 billion has been put into the constitutional and statutory budget reserve funds. He credits the Senate’s bipartisan majority with leading the way, noting that several years ago, senators had buttons made declaring that they were on a “savings spree.”
Doogan said there’s been more talk about saving recently but he argues that neither the Legislature nor the governor is taking the issue more seriously, noting the continued growth in Alaska’s operating budget. Parnell has blamed recent year increases in large part on formula-driven programs, like education and Medicaid.
Doogan laughed when asked if he thought his bill, which was introduced last year, would get a hearing.
“The impetus is to spend money, not to save money,” he said. “Politicians talking about saving money is a good thing, but I don’t see that happening.”
Comments (14)
Add commentBravo
Nice to see proposals to save here.
definition of surplus?
I don't get Parnell - If I have a $10,000 credit card bill at home, and a great aunt dies leaving me $2,000 - - I don't have a "surplus" - I have $2,000 less debt, once I pay the credit card down! Unfunded liability to retirees, who work 20-30 years for the state, should work EXACTLY the same.
Here's what I don't understand: Why would legislators propose putting billions more into PFD? Why not take the whole $4 billion and put it directly into the unfunded liability? Why create a "pension reserve fund" unless your only reason for doing so is to be able to get your hands on those "liquid" assets next year when you want to build something in your district? Just pay the bill already.
If the legis was really smart, wouldn't they put away $2-4 billion and NOT touch it for 5-10 years, letting it build up to PFD size, then use the proceeds from that (similar formula as PFD amount taken off the top) to supplement funding/savings?
Answer: because all Alaskans
Answer: because all Alaskans like the PFD, while only public employees who are part of PERS tiers I-III care about the pension liability.
It is therefore politically more advantageous to bolster the PFD.
What an effective system we have, eh?
The future looks a little misty...
What gets me about this article, and I don't want to sound too negative, but two comments within -
(Alaska)- '...didn’t feel the effects of the U.S. recession nearly as much as most other states and high oil prices have helped to keep its treasury flush.'
You make the depression sound like it is already over...
and:
'...we’ve got a lot of money and want to make sure we don’t blow it all...'
Oh sure, we all have lot's of money! Sheesh! What we have are a lot of problems.
I certainly don't know everything, but I cannot see the future Alaska past a certain point. Oil revenue will drop off eventually, and easy Federal spending will surely go extinct. Alaska does not have a sustainable economy right now. We are addicted to revenue that has a known shelf life, we may not know when it will fail, but we all can see it coming. Budgets and monetary policy must be done, but at some point, Alaska looks like a slowly boiling frog. Each year everyone spends a little more, and another year goes by, and the addictions remain the same. This must be the reason why so many are so insecure, as if everyone is thinking 'we will all have to bail out and leave sometime...'
Unless our economy changes, the real value of our economy will die on the vine as resources and government spending become restricted. We cannot save enough to spend on indefinitely. (like - FOREVER)
At some point things just don't add up, and it makes me a little queasy.
Pension
Since when did getting a pension become a sign of greedy weakness?
I thought it was a sign that I've been a working, taxpaying American for my job/career.
Let's not kill the American Dream, folks.
Pay for what you need to pay for, be frugal and fair, save the rest for the future
Swimmergirl and P.P.:
We can boil all the little details, but at some point, it becomes the big question: Where is Alaska going to go, if anywhere?What are our long term goals? Are Alaskans, (and possibly all Americans) going to just die in a spending spree?
There is one thing, as you are commenting on the unfunded liability. As you may know, it has been a concern of mine. I have recently talked to someone who made the points that said all the different PERS Tier's have a very different level of unfunded liability. According to this person, by far the biggest problem is Tier I. There is apparently a idea that as the geezer class ages, they will hopefully die out before spending all their available benefit allowance on health care, thus greatly reducing the need for all the 12 billion of unfunded liability. I was told that the Tier III is fully funded, and that the problem is not so acute in the Tier II system.
I don't know if this is true or not. Perhaps someone knows something about this...
I was just reading that our
I was just reading that our state leads the Nation in toxic chemical releases. How many millions has been spent on fighting the regulations that were put in place to protect our health from these toxic chemicals? I know two women that were recently diagnosed with breast cancer and they both fish for a living.
Attempt at partial answer for Spoorprint
There is no meaningful result from looking at an unfunded liability for an individual defined benefit tier so far as I have ever read or heard. But there are lots of moving parts in actuarial analysis so possibly I have something to learn.
The unfunded liability is usually stated as one number for PERS and TRS combined, and one reason is that the legislature has enough money right now to treat it that way. However, there are different employers in each system and each employer has an individual component in the unfunded liability. The state is the largest employer in PERS but as anyone would guess, the state is only a small employer in TRS.
Actuaries calculate mortality rates with surprising specificity for a given system, and the unfunded liability anticipates those rates being correct. Truck drivers and teachers, males and females, and many other cohorts have different anticipated mortality rates, and those rates are specifically tested for Alaska. If people die faster then of course the unfunded liability we now understand would turn out to be over-stated.
A question I have is this: When the defined contribution legislation (SB141) was being considered the sponsors said it would "stop the hemorrhaging" (referring to the unfunded liability). The unfunded liability has grown about 400% since then, and I would like someone to tell us why SB141 didn't do as advertised. Or are we to believe the unfunded liability would be even larger without SB141, and if so what is the arithmetic to support that claim?
This was a great article on state liquidity and options. Empire articles on PERS/TRS are always written by Pat Forgey. I wish Becky Bohrer would write one so that readers could gain a better understanding and some of our questions would be answered.
spoor and glacier
Spoor - I think you have a point. At home I put funds away on a regular basis, and stay within my budget. Personally, I think the biggest problem, at both the state and federal level, is campaign finance. In the long run, I think it would be much cheaper to give each candidate an equal amount of funding, and only two months (wouldn't THAT be nice?) to run, have mandatory debates and questionaires, and be done with it. No campaigning when they should be working, no being beholden to companies or industries to craft laws to benefit them, and no running all year on how much you can spend for your district, as opposed to what's good for the state as a whole.
Glacierdogs - thanks for the info.
@swimmergirl: the problem
@swimmergirl: the problem with that kind of campaign finance reform is that people will run just so they can get the money. Myself, I don't mind if someone decides to spend two months running a Star Wars themed platform on the public dime if it ensures the elections are fair, but I can see many (especially those who have vested interest in maintaining the status quo) objecting on those grounds.
I like the idea of not being allowed to campaign if you're an incumbent, though. It gives challengers a boost to counter your incumbency advantage, and makes you focus on being a good politician rather than a good campaigner.
I may be a dreamer but...
I also think campaign finance is a big nuisance. I can't help dreaming that we could eliminate all the commercials, polls, and debates and simply allow all candidates to simply state their views on their website and let the voters check it out in private, and make their own minds up without sub-consciously judging each candidate on how slick their public persona is. We would save billions on the corruption and anything to kill commercials is good by me.
Money in Politics
There are decent metrics that show money in politics has less of an impact than most folks assume. A good candidate with a decent message, well delivered has a huge advantage and one that millions of dollars cannot overcome in most instances. The other thing that really matters in politics is name recognition and incumbency, both of which matter way more than money.