Retirement covered, but troubles loom

Decrease in surplus may put squeeze on PERS/TRS benefits

Posted: Sunday, January 28, 2007

Retirement is a hot issue at the Capitol this year. The only people not affected: retirees.

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The state Public Employee Retirement System, known as PERS, and the Teacher Retirement System, TRS, are both running deficits totaling as much as $10 billion, although the numbers are in some dispute.

They're looming over new Gov. Sarah Palin and the 25th Alaska Legislature, threatening to soak up any surplus state revenues in this and future years.

Palin says the state can afford this year to pick up the tab. She's proposed spending $207 million to pick up school districts' extra costs this year, and $77 million to help local governments deal with the increase. The state itself faces an extra $178 million in its own costs.

One thing the governor and legislators from both parties agree upon is that the state will honor its commitments to its retirees. For current government employees, however, raises may be crimped. Citizens may see services cut to cope with the costs.

This year, the state has the benefit of high oil prices, earlier up to the mid-$70s per barrel, to fund Palin's proposal. Not only are oil prices declining now, however, so is production.

Palin has warned that that will threaten the state's ability to shoulder those costs.

"The state cannot sustain this level of spending," she said. "We can do this because we have a surplus today."

The deficits came to light as new estimates for future retirement and retiree health costs were developed in recent years.

Each city, school district and government entity is hit differently. In Juneau, the state's consultants calculated that the city's assets in the retirement system amounted to $22 million, while its liabilities were $105 million.

"It's a very big deal for Juneau," said City Manager Rod Swope.

The city once paid as little as 6 percent of payroll for retirement. As the problems became known, rates for cities and school districts were jacked up.

Juneau's rate went up to 11 percent, then 16 percent and then 21 percent in successive years.

This year's rate was figured at 42 percent before Palin agreed the state should cover the increase.

State Rep. Beth Kerttula, D-Juneau, supported Palin's decision.

"The state does have a responsibility," she said. "We did create the (retirement) plan."

Swope said Juneau officials had no idea they were paying too little when they were paying only 6 percent.

"To tell you the truth, we didn't even think about it," he said.

All across the state, the assumption was the state was watching what its future costs would be.

"They were managing the program, presumably they were keeping track of it," Swope said.

Kerttula said the Legislature made a mistake last year when it revamped the state retirement system at the behest of then-Gov. Frank Murkowski.

"Gov. Murkowski took out long-time public servants who really understood what was happening," and put in his own people, she said.

Teachers union officials who watched the process agreed.

"It was very ideologically driven," said Brian Bjork, President of National Education Association-Alaska.

Bjork said White House officials trying to privatize Social Security were calling Alaska legislators to press for a 401k-type system. Republican California Gov. Arnold Schwarzenegger was proposing something similar.

Both the federal and California efforts failed. However, Alaska shifted its system, in a close vote along party lines.

Now, said Kerttula, also the House minority leader, the problem is worse because new state employees are no longer paying into the state's system.

"No more money is coming in, you are going to crash the whole system," she said.

Sen. Bert Stedman, R-Sitka, who was one of the backers of last session's reform efforts, denied that they did much to increase the problem.

"The new employees don't contribute to unfunded liability," he said. "There is an effect, but it is a fairly small effect."

Given what was passed last year, Kerttula said, Palin is on the right track with her solution for this year.

"We've got to put a finger in the dike," she said. "But that begs the question, what are we going to do next year?"

The city hit hardest is Fairbanks, and its finance director Michael Lamb is recognized as one of the state's top experts on the issue.

"The state is the only one with the fiscal wherewithal to deal with that kind of debt."

The governor's office is still working on a long-term plan and talking with as many groups as possible, said Charles Fedullo, spokesman for Palin.

They're also watching the Legislature, where the issue is likely to be addressed as well.

• Pat Forgey can be reached at

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