A plan to link education funding with a proposed overhaul of the state's retirement system has set the stage for a legislative showdown next week in the Senate.
The Senate Finance Committee this week changed an education bill by the House of Representatives that would provide $70 million in increased education funding next year.
The Senate version, however, makes $38 million of that increase - the amount needed to cover increased payments to teachers' and school employees' retirement funds - contingent on passage of a retirement revision bill.
Democrats were prepared to offer amendments to the education bill Friday, but the bill was removed from the Senate schedule until Monday.
"Obviously we're going to object to this linkage," said Sen. Hollis French, D-Anchorage, following the Senate floor session.
French said the $38 million obligation to retirement costs exists regardless of whether the retirement revision bill passes this year. Beyond the dispute over combining the two issues, French said some in the Senate would like to see education funding raised above the $70 million increase set by the House.
Although changes to the education bill might not stick in the Senate, the proposal still must return to the House for concurrence. French predicted the real fight will happen when the bill goes to a conference committee of members of the House and Senate.
House Majority Leader John Coghill, R-North Pole, said the changes to the education bill linking it to retirement overhaul came as a "big surprise."
"To put that all on one year's education budget, I don't think that's something the House wants to do," he said.
Although other retirement revision proposals are beginning to surface, most discussion in the Capitol is centered on Senate Bill 141, introduced earlier this week by the Senate Finance Committee. That bill establishes a new tier under which new public employees and teachers would receive lower pensions and health benefits. The benefits for existing employees would not be changed.
The proposal would replace the current defined-benefit plan with a defined-contribution plan that works similar to a 401(k) retirement savings plan. Essentially, new employees would get back what they pay into the system. Under the current system, employees are guaranteed a defined benefit regardless of what is paid in.
Sen. Bert Stedman, R-Sitka, said earlier this week the $16.4 billion Public Employees' Retirement System and Teachers' Retirement System are underfunded by $5 billion. The shortfall is based on a variety of factors such as poor performance in the stock market and rising health care costs.
Some have argued that the change would be a disincentive for new employees to take jobs with the state.
Coghill acknowledged that something needs to be done with the retirement systems.
"Can we offer those benefits without ever defining them? I think the answer is no," he said.
Sen. Gary Wilken, R-Fairbanks, said linking the two issues is an effective way to get the retirement bill passed with just over 50 days left in the session.
He said SB 141 is a starting point for the retirement overhaul effort and that the details can be adjusted to reach a consensus among lawmakers.
"I'm not interested in driving away the work force," Wilken said, adding that the bill needs to strike a balance between employers and employees.
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