State to take responsibility for retirement shortfall

Posted: Sunday, March 16, 2008

The House and Senate are wrapping up a much-vaunted three-pronged effort to funnel state revenues back to Alaska schools and communities.

The House is expected to pass a Senate bill on Monday that would have the state permanently shoulder responsibility for paying down a multibillion shortfall in its retirement systems over the next 25 years.

Two other bills dealing with education funding and revenue sharing have already passed the Legislature.

The retirement bill would lift the weight of soaring retirement costs from municipalities and school districts that have employees in the state-run Public Employees Retirement System and the Teachers Retirement System.

It would do that by capping their contribution rates - at 22 percent for public employees and 12.5 percent for teachers - and have the state make up the difference, estimated at $450 million next year.

That amount is expected to increase in 2010 then begin to drop.

The state has been assisting local governments and schools for the last three years through yearly appropriations by the Legislature, but the bill sets the practice in law.

"The best part about the fix is it provides communities with stability so they know what their payments will be every year moving forward, and they can plan their budgets," said Jeremy Woodrow, a spokesman for the Alaska Municipal League.

The state is facing an estimated $8 billion to $10 billion unfunded liability. That's the gap between the retirement systems' total assets and the amount in benefits that would be required to pay all the state workers, teachers, police and firefighters in the system.

The result has been soaring contributions rates that threaten to cripple municipal and school district budgets.

The bill addressing the long-term problem was introduced last year but lawmakers, tussling over who got what in education funding and revenue sharing, finally settled on a temporary fix.

They tackled all three as a single package this session, said House Speaker John Harris, R-Valdez, at a press conference Friday to announce the pending completion of the plan.

"One vehicle might be slanted slightly more toward urban areas and another vehicle might be slanted slightly more toward rural areas, but that's where the balance comes in," said Harris.

Passage of the three bills, which together will cost the state more than $600 million in the next year alone, was eased by money sluicing into state coffers from high oil prices and a boost in oil taxes.

It also was helped along by the work of this summer's Joint Legislative Education Funding Task Force led by Rep. Mike Hawker, R-Anchorage. The group issued a series of recommendations that became the basis for the education bill that passed.

"All of these would not have been able to be accomplished without the education (bill) - that was the hardest nut to crack," said Senate Finance Committee Co-chairman Lyman Hoffman, D-Bethel. "There was no legislation in sight when we ended last year's session."

The education measure will funnel an extra quarter billion dollars into classrooms over the next five years.

The revenue sharing plan, which is tied to the price of oil, will funnel about $60 million a year to communities around the state for the next three years, at least, and is proportionate to city size. That means Anchorage will receive about $15.6 million, Juneau $2.1 million and tiny Akhiok $98,000, for example.

Hawker said the package represents a consensus among legislators that he hoped would put to rest what have been contentious issues.

"All of our individual efforts have always seemed to deadlock, when we finally get down to the last bit of putting together budgets, on these three issues," said Hawker. "What we've really done this year with this package is create truly an accommodation for a durable long-term lasting fiscal relationship between the state and our communities."

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