Gov. Sarah Palin is asking the Alaska Legislature to spend $12 million to finance a lawsuit against a consulting firm whose work contributed to a multibillion-dollar deficit in state retirement funds.
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The state is facing skyrocketing costs for retirement checks and health care that may result in a $10 billion deficit in the Public Employee Retirement System and Teacher Retirement System.
The idea of holding Mercer Consulting, the state's former actuarial consultants, accountable for projections that failed to take into consideration rising medical costs is popular among legislators.
They're divided over the value of a lawsuit, however, and whether such an expense is a smart investment or a waste of money.
Sen. Hollis French, D-Anchorage, chairman of the Senate Judiciary Committee and a lawyer, said the amount initially seemed excessive.
"I didn't know it was going to be $12 million," he said. "I've brought lawsuits before where I just walked over to the court and slapped down a filing fee."
Department of Law attorney Mike Barnhill acknowledges the cost of developing the case is extraordinarily large, but he understands why.
"It's our view that this is an extraordinary case," he said.
French called the case certainly worth a "serious, hard look," however.
State Rep. Beth Kerttula, D-Juneau, said the legal action is a good idea.
Kerttula, both a lawyer and House Minority Leader, said she was initially skeptical but has discussed the case with the Department of Law and thinks the state has a strong case.
"I believe the state has to at least get it up and going," she said. "The state has a fiduciary responsibility to see that it is looked into."
State Rep. Mike Hawker, R-Anchorage, a member of the Republican leadership in the House of Representatives, doubted whether a lawsuit was worthwhile. He likened suing a company whose medical cost predictions were inaccurate to suing a weatherman over a bad forecast.
He said the suit had a "long shot of success."
More importantly, he said, it would be difficult for the state to show damages.
The underestimation of future medical costs meant that the state put less money than it should have for future retirements. The problem, Hawker said, is that the state put money aside elsewhere and may have a difficult time showing that it was harmed.
Sen. Bert Stedman, R-Sitka, co-chairman of the Senate Finance Committee, cautioned against hoping that the lawsuit would be a solution to the retirement systems' problems.
"Clearly the size and scope of what we're dealing with is immense," he said. "We need to not count on litigation to put forth a financial solution."
French acknowledged that but said given the size of the problem, even a settlement that amounted to just a few percent would be valuable.
"For each percent of the deficit you could build a high school," he said.
Pat Forgey can be reached at email@example.com.
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