Reduced city services, fewer teachers and increased class sizes in Juneau could be some of the repercussions of a state decision to increase employer contributions to the government worker retirement fund, local officials said Friday.
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The Alaska Retirement Management Board decided Monday to raise the amount of employer contributions to the Public Employees Retirement System and the Teachers Retirement System, in an effort to reduce the program's estimated $6.9 billion shortfall.
Juneau could avoid city and school cuts in the next year if the incoming governor takes Gov. Frank Murkowski's recommendation to take funds from the state's budget surplus to cover the city's cost increase for the retirement system. The Alaska Legislature would need to approve the measure.
If the budget surplus isn't used to assist cities, Juneau might have to pay an extra $10.65 million next year to meet the state's requirement for employer contributions, said Craig Duncan, Juneau's director of finance. The city's annual budget is $250 million.
"If the state does it, the effect will be really nominal," Duncan said. "If the state doesn't come up with the finances, the effects could be significant."
The funding shortfall, which caught the state's attention about four years ago, was due to plummeting stock market returns, accounting mistakes and other factors. The retirement system is funded by contributions from the state, city governments, government employees and dividends from investment plans. Employee contributions are capped by law.
The increased annual contributions required from the cities is expected to bring the retirement systems back into the black over 25 years.
To meet the state's demands, Juneau would have two options, raise taxes or cut programs, Duncan said. Nonessential services, such as parks and libraries, would be the first things likely cut from the budget, and emergency and police services would be the last.
As bad as it could be for the city, the situation could be much worse for the school system, said David Means, the director of administrative services for the Juneau school district. The school system needs $5.82 million to meet the state's requirements. The school system's budget is $52 million.
"It would significantly impact every area of the district," said Means.
If the funding isn't picked up by the state, Means said, class sizes could increase, building maintenance could be neglected and the number of teachers could be reduced.
Means added there will be a "great deal of pressure" on state legislators to fund the retirement system with the state budget surplus.
"I'm very optimistic that the governor and the Legislature will help us overcome this situation," Means said.
"The impact (of the state not funding the retirement program) would be so severe the Legislature couldn't just stand by and let the municipalities just fade away," he said.