JUNEAU -- The Parnell administration is proposing to next year dip into readily available savings for $1.1 billion to fund the state's budget deficit.
That's led to claims that the budget deficit next year will be $1.1 billion, but other costs buried in budget and acknowledged by state officials suggest that a deficit closer to $2.4 billion is likely for fiscal year 2015, the budget that the Legislature will begin debating in January.
Gov. Sean Parnell is proposing that Alaska also dip into the Constitutional Budget Reserve, one of the state's most protected savings accounts, to fund next year's budget.
What the governor has proposed is covering this year's required extra contribution to the state's unfunded retirement liability from the CBR at a cost of nearly $1 billion. That single action would take the deficit next year to $2 billion.
That's OK, said Sam Trivette, vice chair of the Alaska Retirement Management Board, who doesn't care where the money to shore up the state's retirement trust fund comes from.
"The bottom line is, if the money's there, the money's there," he said.
But the way Parnell has structured the $3 billion contribution he proposed to the trust fund earlier this month means that it's worth a third less than was announced.
In past years the state has made its required payments to pay down the unfunded liability out of the state's General Fund. That amount has been growing and last year amounted to more than $600 million.
Next year, a change in how the amount is calculated made by the ARM Board will bring that amount to about $975 million. It also means that $3 billion contribution is really only $2 billion extra.
But by making that payment from the Constitutional Budget Reserve instead of the general fund, the state will need to draw less from the easy-to-access Statutory Budget Reserve and the deficit looks smaller.
As the unfunded liability grew in recent years, the retirement board unsuccessfully sought additional action by the state, but the governor and Legislature focused on other priorities.
Finally, the board took one of the few actions in its power, changing how annual retirement contributions are calculated. That meant the state would have to pay the debt down faster, but would see significant total savings and much lower payments in future years when state dollars are expected to be increasingly tight.
It would also prevent the annual costs to the state for retirement debt from growing to an anticipated $1.3 billion, which Parnell said threatened to overwhelm state budgets.
"That is felt to be non-sustainable on a long-term basis," said Martin Pihl, an ARM Board member who has urged the board and the state government to address the issue.
He said Parnell's proposed contribution helps to do that.
But Parnell's proposal includes another provision, which would cap retirement contributions at $500 million, likely reducing payments into the trust fund and lengthening by several years the time it would take to pay off the deficit.
Parnell, though, said his plan would be good for the state.
"Paying down the debt now is this generation's responsibility that we will not leave the children of Alaska to deal with in the future," he said.
Spreadsheets of expected future unfunded liability payments attached to the press release announcing the proposal show it extends the payment period until 2036. Without the cap, the debt would be paid off in 2029 or 2030.
Parnell's budget director defended not including the $1 billion from the Constitutional Budget reserve as part of her deficit estimate.
"The 1.1 (billion) deficit is what we are projecting from the SBR based on the Unrestricted General Fund revenue and the proposed spending plan of $5.6 billion," she said in an email.
But in introducing his budget last week, Parnell also acknowledged that it would wind up with a deficit higher than $1.1 billion for another reason.
The capital budget he proposed to fund projects around the state has "room" for more capital projects, he said. While Parnell said the state must "live within its means," he hasn't provided specifics about what he considers to be the state's means.
State Legislative Finance Director David Teal said he expects the state's budge deficit next year to be about $2.4 billion given the retirement contribution and expected capital budget additions.
He called funding state government in future years "a very real worry" due to the growing deficits.
"We've done the charts; depending on how much you spend, your reserves are dead sometime in the 2020s," he said. "So then you've used all your money and you are still facing billions in deficits. Now what?"
But Pihl said the important thing now is to get as much in the retirement trust funds as soon as possible to limit costs in future years.
"I'm just so hopeful that the people managing the budget for the state have come to the realization that if you do not fund it earlier, it snowballs on you and becomes this $1.3 billion (per year) number that no one wants to see," he said.
The Statutory Budget Reserve, which can be spent with a majority vote in the Legislature, currently holds $5.5 billion. The Constitutional Budget Reserve, which takes a three-quarters vote to spend, includes $12.2 billion.
The state's most difficult-to-access savings account, the Alaska Permanent Fund, contains $48.2 billion.
Contact Pat Forgey at pat(at)alaskadispatch.com.