JUNEAU — Gov. Sean Parnell said Tuesday he plans to address Alaska’s nearly $12 billion unfunded pension liability as part of an overall effort to rein in spending amid lower expected revenues.
In an interview with The Associated Press, Parnell said he would like to see state spending well below current levels for the upcoming fiscal year. He did not provide specific numbers but said he would work with legislators on a spending target.
He said the budget he plans to propose next week will leave room for them to add. “But, again, there needs to be a measure of restraint in doing so,” he said.
Parnell said revenues are expected to be lower because of lower oil prices and declining production — not because of the new oil tax.
Alaska relies heavily on oil revenue to fund state government, but production has been trending down for years. Higher prices in recent years helped mask the impact of the decline.
The Legislature earlier this year passed an oil tax cut championed by Parnell that is aimed at spurring production. Critics called the tax cut a giveaway to the industry that could put the state treasury at risk. But the governor said the revenue coming in under the new tax will be comparable to that of the old system because of the lower oil prices. If prices continue to drop, he said his message to Alaskans will be that they are better protected at lower prices than under the prior system.
The new oil tax is the subject of a referendum that voters will decide next year. A new revenue forecast is scheduled to be released Wednesday.
“I think we have a responsibility to lower spending in this environment, and my budget will reflect that I take that responsibility seriously,” the governor said.
Parnell plans to address what he calls one of the biggest drivers of the budget: the unfunded pension liability. The state is on a payment schedule that is expected to grow from the current level of more than $600 million to more than $1 billion before declining.
The governor in the past has supported staying on the payment schedule, but said he now believes that course is “unsustainable and threatens our operating budget.” He said his thinking on the issue was influenced, in part, by concerns raised about it by rating agencies.
The Alaska Retirement Management Board earlier this year proposed that the Legislature provide an infusion of $2 billion toward the public employees and teachers’ retirement systems over four years, which it said would save money in the long run. Parnell has not publicly discussed his plans but said the state needs to get a better handle on issues like this and Medicaid as it works to address overall spending.
Senate Minority Leader Johnny Ellis, D-Anchorage, said the pension issue has “demanded leadership for some time” and said he’s happy to see “some level of willingness” to address it now. Ellis in 2012 proposed legislation — that ultimately went nowhere — that would have moved $2 billion from savings into a special fund intended to help address the state’s pension debt.
“I guess I’m just saying, better late than never and let’s work together to address this issue,” he said.
The state started the fiscal year with about $16 billion in savings between the constitutional and statutory budget reserve funds. Savings are expected to help the state balance the budget in coming years as state officials watch to see whether the oil tax — if it stands — has the desired impact on production that they hope.
Parnell said he also will propose a capital budget focused on maintaining state infrastructure, including addressing deferred maintenance, and finishing projects that already have been started.
He declined to say whether he asked for specific departmental cuts but said he and his budget team “worked hard to push spending down.” He said their goal was having a more sustainable budget in the long run while continuing to meet constitutional obligations and administration priorities, such as funding for village public safety officers and state troopers.