JUNEAU — The House Finance Committee advanced Gov. Sean Parnell’s plan for addressing the state’s pension obligation Tuesday, but the issue is far from settled.
As HB385 was moving from committee, Senate Finance was meeting on the opposite end of the fifth floor of the Capitol, discussing other options.
Senate Finance co-chair Pete Kelly, R-Fairbanks, said he is interested in putting more toward the teachers retirement system than Parnell proposed — perhaps around $2 billion — and looking at ways for the state to preserve its cash reserves. But he stressed it will be a committee decision, and he was not sure what direction the committee would take.
The decision comes down to how much money the state wants to put down, how much it wants to make in annual payments and over what period it wants to spread those payments.
The debate comes at a time of deficit spending for the state amid slumping revenues. While the state has billions of dollars in reserves now, Legislative Finance Division Director David Teal said they could be gone by 2024, largely a function of spending and revenue trends.
Parnell’s plan calls for taking $3 billion from the constitutional budget reserve and putting about $1.9 billion into the public employees’ retirement system and $1.1 billion toward the teachers’ system. After the infusion, the plan calls for annual $500 million payments 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. The bill leaves open the potential for the need for additional funding, should an actuarial review deem that necessary.
The idea is to ease the pressure on the state budget, relative to the current payment plan the state is on, while also addressing the nearly $12-billion pension obligation. But some lawmakers question how affordable that is in light of other state obligations.
When asked by Kelly if putting about $2 billion toward the teachers’ system and $1.5 billon toward the public employees’ system would get them both to a level at which they’re considered healthy, Teal said that would do so.
Between the two systems, the teachers’ system is in worse shape, Teal said, with a funding ratio that he told Senate Finance is in the “danger zone” in terms of the health of retirement systems. That funding ratio is about 52 percent, according to the state departments of Administration and Revenue. The teachers’ system also is an obligation paid by the state, Teal noted, as compared to the public employees’ system, for which municipalities also pay. The unfunded liability of the teachers’ system is $4.5 billion. Teal said even a $2 billion infusion would boost the funding ratio to over 70 percent, which he said wouldn’t be bad.
The funding ratio for the public employees’ system is about 61 percent. One issue there are new accounting standards that call for municipalities to report pension liabilities on their balance sheets. Teal said that could make some local governments look “pretty horrible.” But Deputy Administration Commissioner Mike Barnhill said any deposit into the system will reduce the amount of the liability and the amount of pension liabilities allocated to municipal balance sheets, helping local governments.