JUNEAU — Municipal leaders on Saturday expressed support for Gov. Sean Parnell’s approach to addressing the state’s pension obligation.
They also supported keeping the municipal contribution to the public employees’ retirement system at its current level. Municipal leaders have been worried that lawmakers would propose raising the local contribution as part of a plan to address the unfunded pension liability, though no such proposal has been made.
During a House Finance Committee hearing Saturday afternoon, mayors, assembly members and borough finance directors praised Parnell’s plan to move $3 billion from the constitutional budget reserve fund toward addressing the public employees’ and teachers’ retirement systems. At least 19 local governments have passed resolutions supporting the approach.
Under the plan, about $1.9 billion would go to the public employees’ system and the rest to the teachers’ retirement system. After the infusion, the plan calls for flat annual payments of $500 million overall over 20 years, with a $131 million payment in 2036, according to information from Parnell’s budget office. The teachers’ retirement share of the $500 million would be about $340 million. Trust-fund earnings would eventually be used to pay benefits.
Committee co-chair Rep. Alan Austerman, R-Kodiak, said if the municipal share went up, that would help with upfront payments toward the liability. But he said municipalities weren’t stepping forward and offering to do so. He said this is not just the state’s liability.
While lawmakers stress the state will continue to honor its commitments to retirees, they are grappling with how best to address the obligation with the session scheduled to end next weekend. The state is currently on a plan that calls for escalating pension payments over the next 15 years, on pace to top $1 billion a year before declining. Parnell has said his plan is aimed at easing pressure on the budget but some question just how affordable it might be in light of the state’s other obligations in the next few years.
Legislative Finance Division Director David Teal said Saturday that regardless of whether the state adopts Parnell’s approach or sticks to its current plan, budget reserves could be depleted by 2024.
While some lawmakers support Parnell’s approach, others say they’d be open to larger cash infusions or putting greater focus on and a greater share of money toward the teachers’ retirement system. Some like the idea of lower payments spread out over a longer period.
Parnell said earlier this week that his plan is responsible and he hoped lawmakers would pass it or adapt portions of it in an actuarially sound manner.
“Failing that, yes, I would suggest that legislators continue to make those annual payments as we have been,” he said.
Austerman has said staying on the current payment plan and coming back and trying to address the situation next year the “worst case scenario.”
Parnell first made his proposal in December but introduced it in bill form in the House on Thursday, after House Finance Committee members said they would feel more comfortable seeing it as such, rather than as just a budget item. The Senate bill was introduced Friday, and also heard for the first time Saturday by the Senate Finance Committee.
Revenue Commissioner Angela Rodell said the pension issue is the “number one” credit concern raised by ratings agencies.
House Finance, as part of Parnell’s education bill, put forth a plan of its own outlined by Teal for addressing the teachers’ retirement system. The “pay-as-you-go” plan called for $1.4 billion toward the teachers’ system and $100 million toward a reserve fund. It would have started with smaller annual payments and payments stretched over a much longer period. It also could have exhausted the trust fund over a period of decades and would have relied on contributions to pay future benefits.
The plan was stripped from the education bill on the House floor, with lawmakers — at Parnell’s urging — opting to take up the issues separately.